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As a taxpayer, understanding the statute of limitations for IRS audits is crucial. While the general rule is that the IRS has three years to audit your tax return, there are important exceptions that can extend this period. Let’s break down the key points you need to know about IRS audit lookback periods.
The Three-Year Rule
Generally, the IRS has three years from the date you file your return (or the due date, whichever is later) to audit your taxes. This means that for most taxpayers, once three years have passed, you can breathe a sigh of relief.
When the IRS Gets Six Years
However, in some cases, the IRS can look back six years:
- If you underreported your gross income by more than 25%
- If you omitted more than $5,000 of foreign income
For example, if you earned $200,000 but only reported $140,000, you’ve omitted more than 25% of your income, giving the IRS six years to audit.
The Unlimited Lookback Period
In certain situations, there’s no time limit on how far back the IRS can audit:
- If you never filed a return
- If you filed a fraudulent return
- If you failed to file certain international information returns (like Form 5471 for foreign corporations)
State Tax Considerations
If you operate in Texas, you need to be aware of the state’s audit rules as well:
- Four-Year Rule: The Texas Comptroller’s Office generally has four years to audit your state tax returns, compared to the IRS’s three-year rule.
- Unlimited Time for Non-filing or Fraud: Like the IRS, Texas has unlimited time to audit if you never filed a return or if you filed a fraudulent return.
What This Means for You
- Keep good records for at least three years after filing.
- For business owners or those with complex returns, consider keeping records for six years.
- If you have foreign income or assets, be extra diligent about reporting and record-keeping.
- Always file your returns, even if you can’t pay. The statute of limitations doesn’t start until you file.
Remember, tax laws are complex and can change. When in doubt, consult with IRSProb.com to ensure you’re in compliance and protected.
