What is a Statute of Limitations?
A statute of limitations is a time limit set by law for when legal proceedings can be commenced relating to a certain legal issue or offense. If you’ve ever watched a crime tv show, statutes of limitations often arise to bar the government from prosecuting an individual for a crime.
For the Internal Revenue Service, statutes of limitation exist to limit the IRS’ time to audit and assess additional tax. Otherwise, you could be worrying about tax mistakes for the rest of your life!
General Statute of Limitations – 3 Years
The standard statute of limitations that applies in most cases is three years from the later of the date your return was due or the date it was filed.
For example, your 2023 tax return individual income tax return was due April 15th, 2024. If you filed your return timely, either on or before April 15th, 2024, the IRS has until April 15th, 2027 to audit your return and assess any additional tax.
However, if you didn’t file an extension and you filed late on June 1st, 2024, then the IRS would go from the actual filing date of June 1st, 2024 for that three year period, meaning the IRS would have until June 1st, 2027.
Gross Omission of Income – 6 Years
The 3-year statute of limitations applies in most instances, but the IRS can use a 6-year statute of limitations if you underreported your gross income by more than 25%.
This means you reported less gross income than you actually earned, and that understatement added up to be more than a 25% of the gross income shown on the return.
In this instance, the IRS can audit for up to six years (from the later of the date the return was due or filed) to assess any additional tax.
For example, if you filed your 2023 return timely on April 15, 2024, but underreported your gross income by more than 25%, the IRS would have until April 15th, 2030 to assess any additional tax on that 2023 tax return.
Fraudulent or Unfiled Return – Unlimited
The IRS has unlimited time to assess additional tax on a fraudulent tax return. A fraudulent tax return is one that willfully and intentionally filed with false information to deceive the IRS.
Also, if you never file a tax return for a certain year, then the statute of limitations doesn’t start running. For example, if you haven’t filed your 2022 tax return, then that three year statute of limitations (or a longer one if applicable), doesn’t start running until you file your tax return. If you have returns you haven’t filed in past years, it is generally best practice to file them as soon as possible to start the three-year period running so the IRS only has limited time to look at your return and assess any additional tax.
Conclusion
This video and article is just a quick overview of statutes of limitations and how long the IRS has to audit and assess any additional tax on your tax return. If you have any questions about statute of limitations or need help with a tax dispute, contact us today!