You’re sifting through a month’s worth of mail, determined to tackle it once and for all when you come across a notice that immediately gives you a knot of anxiety in your stomach.
It’s from the IRS. It’s a “notice of tax due,” and your balance is about to be late.
Why do you owe money from 2015? That’s 3 tax seasons ago! How far back can the IRS audit anyway?
Don’t panic. Take the time to read your letter. Even though IRS mail is not to be ignored, you won’t necessarily be paying what you see in front of you.
In fact, the IRS is understaffed. As a result, of all Americans who reported $1 million or more in last year’s tax season, only 3% of them were audited. These audits are half of what they were in 2010.
Even still, being audited is no joke. So what are your rights? And how far back can the IRS go?
Keep reading to learn more about the tax audit process, and when to know you’re in the clear.
How Far Back Can the IRS Audit?
The general answer is, unfortunately, “forever.” But rest assured, forever does not apply to all circumstances. There are technically 3 time limits to keep in mind when filing your tax returns.
1. 3 Years
Technically speaking, the IRS can go back 3 years from when you file. The 3 year period will start on the day taxes were due (April 15) or 6 months later (October 15) if you filed late with an approved extension. If you file late without an extension, that 3 year period will start from the day you actually filed your taxes.
When you receive a letter from the IRS saying taxes are owed, it can be as simple as sending in a form to show you were enrolled in school. It can be as simple as sending in other forms to validate tax credits you may have claimed on your return.
If you agree on the amount due and it isn’t overwhelming, you can call the IRS directly to arrange payment or agree on a monthly payment plan. If the bill is overwhelming and you decide to seek legal counsel, chances are you won’t need to pay nearly as much as the letter states you owe.
In the face of an audit, the most important thing you can do for yourself is to remain calm. Here are 10 things to remember when you owe the IRS.
2. 6 Years
Usually, the IRS will only go back 3 years. However, if your tax return presents substantial errors, the IRS will go back up to 6 years. Here are errors considered to be substantial enough to go back more than 3 years:
- Your reported income is off by up to 25%
- You omitted more than $5,000 of foreign income
- IRS Form 5471, which has to be sent in for anyone with ownership of a foreign company
- No return or a fraudulent return
If you do owe money, the IRS technically has 10 years to collect that money. But there are ways for them to “renew” a collection period, so it is possible for them to shake you down for funds, for decades.
3. For Eternity
The IRS says on their website that they usually don’t go back more than 6 years for an audit.
That being said, any sign of fraud or extenuating circumstances, even if accidental, can enable the IRS to, essentially, come after you forever.
If your taxes aren’t categorized by any unique circumstances for a particular tax season, then the statute of limitations really does protect you with the 3-year window.
What If You Can’t Afford to Pay?
There are many ways you can reduce your IRS tax balance.
First and foremost, decide if you agree with what you owe. IRS workers are human after all, and humans make mistakes. So don’t necessarily take their word over your own if something seems to be off.
You can negotiate with the IRS, but it’s essential to have representation, especially if you go for an audit in person. A tax expert can both guide and represent you so that much of your burden is alleviated, knowing that you will get through this the right way.
In addition to negotiating, there are other options such as claiming bankruptcy, setting up installment payments, or asking for a hardship suspension.
One thing is for sure, if it’s just money you aren’t paying, you will not go to jail. You can never, under any circumstances, go to jail for not paying what you owe. If you have made false claims or misreported income, however, you may go to jail for those crimes.
If you’re reading this and consumed by worry, contact us 24/7 for a FREE consultation.
What Can a Tax Attorney Help With?
If time isn’t on your side and the IRS is actively threatening you, we can provide you with emergency assistance. Within 24 hours we can stop the IRS from levying your bank account, freezing any other assets you might have, and taking from your salary.
We can help you no matter what. If you’re financially strapped and can’t afford to pay what you owe, we can help. If you’re facing criminal charges or protecting offshore accounts, we can help.
We have eliminated over $600,000 in tax debt.
Where Should You Go from Here?
Read your letter(s). Instead of fearing and avoiding the IRS, make a choice to face them head-on. The first step in doing so is to understand precisely what they’re asking for and why they’re asking for it.
So how far back can the IRS audit? In most cases, it’s 3 years. But in extraordinary circumstances, the IRS can audit upwards of 6 years.
Nip it in the bud now and seek help. It won’t cost you a dime to get started, and you’ll feel at ease knowing experts are by your side. Plus, it’s likely that you won’t pay nearly as much as they claim you owe. We are here to negotiate for you and come to an agreement you are comfortable with.
Want to learn more about taxes first? Click here to check out our blog to learn about all things taxes. And remember to stay calm!