How Long Can the IRS Audit a Tax Return?

Most taxpayers do not have to worry forever about an IRS audit of an old return. The IRS generally has a limited period to audit a return and assess additional tax. That deadline is commonly called the Assessment Statute Expiration Date, or ASED.

The basic rule is three years, but there are important exceptions. Certain omissions, foreign asset issues, Employee Retention Credit claims, unfiled returns, fraudulent returns, and written extensions can keep the assessment period open longer.

The general rule is three years

In most cases, the IRS has three years to assess additional tax. For a timely filed return, a return filed before the deadline is generally treated as filed on the due date. If a return is filed late, the three-year period generally runs from the date the IRS receives the return.

For example, if an individual 2022 Form 1040 was due April 18, 2023, and was filed on or before that date, the general assessment period would usually expire on April 18, 2026. If that return was filed late on October 31, 2023, the general assessment period would usually expire on October 31, 2026.

The IRS may start an audit well before the final deadline so there is time to request records, review responses, consider appeals, and make any assessment before the statute expires.

Pass-through entity owners

Owners of partnerships, S corporations, and multi-member LLCs should not assume the entity return controls the statute for the owner's individual return. The assessment period for the owner is generally measured by the owner's own return, not simply by the filing date of the partnership or S corporation return.

That is one reason K-1s, basis schedules, entity returns, and personal filing confirmations should be kept together.

Keep proof of filing

The filing date matters, so taxpayers should keep proof that a return was filed and accepted. For e-filed returns, keep the electronic acceptance record. For paper-filed returns, use certified mail or an IRS-approved private delivery service and keep the mailing records with the tax file.

A postmark can help under the timely mailed, timely filed rule, but the taxpayer still needs practical proof if a filing date is later questioned.

Six years for larger omissions

The assessment period can increase to six years if a taxpayer omits more than 25 percent of the gross income reported on the return. For a trade or business, gross income is generally measured before reducing receipts by the cost of goods sold or services.

The six-year rule can also apply when basis is overstated and the overstatement causes gross income to be understated. In plain English, if a sale is reported with too much tax basis and that causes too little gain to be reported, the longer period may apply.

A separate six-year rule can apply when more than $5,000 of omitted gross income is attributable to certain foreign financial assets.

Certain ERC claims now have a six-year period

Employee Retention Credit claims have their own timing rule. Current law gives the IRS six years to assess amounts attributable to certain ERC claims for wages paid in the third and fourth calendar quarters of 2021.

The six-year period runs from the latest of the original return filing date, the date the employment tax return is treated as filed under the general statute rules, or the date the ERC claim for credit or refund was made.

For employers with ERC claims, that means payroll tax return files, wage support, eligibility analysis, shutdown or gross receipts documentation, and amended return records should be retained for longer than the ordinary three-year period.

No deadline for unfiled or fraudulent returns

If a required return is never filed, the assessment statute does not start. The IRS can assess tax at any time until a valid return is filed and the applicable statute begins to run.

There is also no normal deadline for a false or fraudulent return filed with intent to evade tax. Filing an amended return later does not necessarily cure a fraudulent original return for statute-of-limitations purposes.

Fraud is a serious, fact-specific issue. IRS fraud indicators can include concealed income, false documents, incomplete records, misleading information, or other conduct showing an intent to evade tax.

Amended returns do not usually restart the clock

Filing an amended income tax return generally does not restart the entire IRS assessment period. The statute usually continues to run from the original return's filing date.

There is a narrow exception when a taxpayer submits a signed document showing additional tax within the final 60 days before the assessment period would otherwise expire. In that situation, the IRS generally has at least 60 days after receiving the document to assess the additional amount shown.

The IRS may ask for more time

During an audit, the IRS may ask the taxpayer to sign a consent extending the assessment period, often using Form 872. The taxpayer is not required to agree automatically.

If an extension is appropriate, the taxpayer can ask to limit the extension by time period or by audit issue. A narrower extension can preserve time for review or appeals without giving the IRS open-ended authority to expand the examination.

Practical takeaways

• For many returns, the general assessment period is three years.
• Six-year rules can apply to substantial omissions, certain foreign asset income, basis overstatements, and ERC claims.
• Unfiled returns and fraudulent returns can remain open indefinitely.
• Keep e-file acknowledgments, certified mail receipts, and complete tax files.
• Do not sign an IRS statute extension without understanding the scope and expiration date.