Mar 5, 2008

How long can the IRS audit my tax return?

This is a question I get often and the answer is simple and complex. The real question is what is the "assessment statute expiration date" or "ASED".

First, if you file your tax return on or before April 15th, the IRS has three years (normally) from April 15th to audit you. Normally means that you do not have a substantial omission of income (i.e. 25% or more) or you have not committed tax fraud. If you have a material omission of income, the statute to "assess" additional tax or ASED is 6 years from the date the tax return was filed or the due date of the return, whichever is later. If your return is fraudulent, then their is no ASED.

An example of a normal ASED is:

2007 return filed on March 10, 2008

  • Last day for the IRS to assess additional tax: April 15, 2011
  • If you have omitted more than 25% of your income: April 15, 2014
  • If your return is fraudulent: there is no ASED

However, for the 2007 tax year, when will the IRS examine me: under the above example, probably within 16 months after the filing of the return. This is due to the fact that the IRS will not extend the ASED to the 6-year or fraudulent unlimited ASED date without an audit. An IRS Revenue Agent must make the determination of whether the 6-year ASED or fraudulent return applies. Furthermore, the Internal Revenue Manual and the IRS Agent is not likely to open an examination if it is close to the end of the ASED. Actually, the IRM states that a Revenue Agent needs managerial approval to open an examination that has less than 1 year left on the ASED. If a Revenue Agent and their Group Manager allows the ASED to expire then there is serious implications to the Agent and his Manager. In fact, they could lose their job as they have not protected the Government's interests: a priority for any Agent and Manager.

Hence, in the above example, unless the IRS has begun criminal investigation, you are generally safe from examination on April 15th, 2010. If an exam starts after that date, the Agent must have alot of information and a good reason for auditing you.

In any event, an examination, and especially a Field audit by a Revenue Agent, is a serious matter and it should only be handled with a Tax Professional.

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