Previously, we looked briefly at the time limitations for the Georgia Department of Revenue to conduct an audit and assess penalties on a taxpayer. As we noted, three years is the general rule, though six years is the maximum amount of time the state has to assess additional tax liabilities on a taxpayer.
At the federal level, the rules are very similar. First of all, most IRS audits occur within a couple years of a tax filing or the due date of a filing, though the IRS is able to include returns filed within the last three years, under ordinary circumstances. The IRS is able to add filings going more than three years back if the taxpayer made a substantial error in a return, but the agency may not audit tax returns going back over six years.
The statute of limitations for the IRS to assess additional tax is generally three years of the taxpayer’s filing or the due date of a filing. If an audit is begun and is not resolved within that amount of time, the IRS may request that the taxpayer extend the statute of limitations. The taxpayer does not, it is important to understand, have to agree to an extension, but refusing to do so will force the IRS to make a decision based on the information available, which may not necessarily be in the taxpayer’s favor.
When faced with the prospect of extending the statute of limitation, taxpayers have several options. In our next post, we’ll take a look at these options and the rights a taxpayer has in seeking an extension.