IRS Statute of Limitations on Refunds and Audits

IRS Statute of LimitationsThe statute of limitations on audits limits how far back the IRS can go to audit your return. The IRS generally has three years from the tax return due date to audit your return and assess additional tax, but there are a number of exceptions to this rule.

Taxpayers also typically have three years to claim a tax refund. If you fail to file a tax return by this deadline, the United States Treasury will keep your refund, and you will forfeit your right to receive the money.

The Statute of Limitations on Claiming a Refund

You must file your tax return within three years of the due to date to receive your tax refund. For example, 2017 tax returns were due on April 18, 2018. You must file a return by April 18, 2021, to receive a refund.

There is no penalty for filing your return late if you are owed a refund. You may be eligible for a tax refund even if you are not legally required to file a return.

Workers who have taxes withheld from their paychecks need to file a tax return to get that money back. Even if you didn’t have any taxes withheld from your wages, you could still receive a refund if you are eligible for a refundable tax credit, such as the Earned Income Tax Credit.

The Statute of Limitations on Filing an Amended Tax Return

If you file a tax return that contains errors, you may need to file an amended tax return to correct these mistakes. You have three years from the tax return due date to file an amended return using Form 1040X.

Only use Form 1040X if you have already filed a tax return for that year that the IRS has accepted. If you are amending your return to claim an additional refund, wait until you receive your initial refund check to file the 1040X.

You might need to amend your return to receive an additional refund if you failed to claim all of your credits, deductions, or dependents. You don’t need to amend a return to fix math errors or if you forgot to attach tax forms.

The Statute of Limitations for IRS Tax Audits

3 Year Period for IRS Audits

The IRS gets three years to audit your return and assess additional tax. The clock starts ticking on the date your return is due or when you file, whichever comes later. Add three years to get your Assessment Statute Expiration Date (ASED).

Once the ASED passes, you can’t be assessed additional tax for that tax return unless one of the exceptions listed below applies.

6 Year Period for IRS Audits

The IRS has six years to assess tax when any of the following circumstances exist:

  • Your return contains a substantial error. A substantial error is an understatement of income of 25% or more. A basis overstatement can also qualify as a substantial error.
  • You fail to report foreign income. Taxpayers with foreign bank accounts may have reporting requirements, including Foreign Bank Account Reports (FBARs). A failure to file an FBAR can result in severe penalties.
    Unlimited Time Period for IRS Audits

The IRS has unlimited time to impose tax in the following situations:

  • Tax fraud. If you file a false or fraudulent return, the IRS has unlimited time to assess additional tax. The burden is on the IRS to show that the legal standard for tax fraud is present.
  • Unfiled returns. The clock doesn’t start on the ASED until you file your return. If you don’t file a return when you are legally required to, you give the IRS unlimited time to audit your return, file a substitute return on your behalf, or assess tax against you.

Voluntary ASED Extensions

The IRS can extend the ASED by getting a taxpayer’s consent. If the IRS believes you may owe substantial additional tax for a tax year, but there isn’t enough time to conduct an audit before the ASED, they may ask you to agree to extend the tax assessment period.

You may want to negotiate limits on the scope or length of an ASED extension, or you may not want to allow an extension at all. A tax professional can help you decide which course of action is best for you.

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