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If I Face an IRS Audit, for How Many Years Can I Be Held Responsible?

If you face an IRS audit, how many years can I be held responsible? Sacramento CPAs explain how many years back the IRS can audit you if there appear to be mistakes on your federal income tax returns.

There are several reasons the Internal Revenue Service (IRS) may determine that it is necessary to conduct a tax audit. The IRS may select you for an audit due to suspicious errors or discrepancies on your tax returns, because you are self-employed, or simply choose you at random using a computer algorithm. If you are concerned about an anticipated or recently initiated IRS audit, you should contact an experienced Roseville tax audit accountant for assistance as soon as possible. You should also familiarize yourself with some important facts about how and when IRS audits occur, such as how many years back the IRS can audit you. Continue reading to learn more about how far back you can be audited. Then, contact Cook CPA Group to speak confidentially with our California tax professionals in a free consultation.

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What is an IRS Audit?

The phrase “IRS tax audit” is enough to strike fear into the hearts of most taxpayers. Though facing an audit can be nerve-wracking, the best way to approach the situation is to remain calm and educate yourself about what an audit involves, which will help you to prepare as thoroughly as possible.

In the IRS’ own words, “An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.” This review process may be conducted via mail, or by holding an in-person interview. In either case, it is in your best interests to hire a skilled tax accountant who provides audit and tax planning services in Roseville. Your tax accountant will be able to:

  • Review your tax returns and other IRS forms for completeness and accuracy.
  • Help you manage the financial documentation you are required to submit to the IRS as part of your audit.
  • Identify solutions to any errors that may have triggered the audit, such as failure to file an FBAR or comply with the Foreign Account Tax Compliance Act (FATCA), which is mandatory if you have income or assets overseas exceeding certain thresholds.

Be advised that the IRS does not call taxpayers concerning audits. If you receive a phone call or automated message from a person claiming to be an IRS agent, do not share any of your personal or financial information, or you may fall victim to a costly scam. Rather than calling you, the IRS will send you a letter in the mail to notify you of the upcoming audit.

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How Far Back Can You Be Audited for Taxes by the IRS?

Most IRS audits reach back a maximum of three years, meaning any tax returns you filed during the previous three years may be included in the audit.

However, while three years is the typical cut-off point, there are also some situations in which the IRS will extend or even double the standard audit period. Depending on the circumstances, the IRS audit period will generally range anywhere from three to six years.

Though uncommon, there are even cases where the IRS audits tax returns from seven years ago or earlier. To quote the IRS on this subject, “We usually don’t go back more than the last six years.” Notice the IRS specifies “usually” – not “never.”

Depending on how much time is needed to complete the audit, the IRS may move to lengthen the statute of limitations for assessing tax, which is normally three years. In law, a “statute of limitations” is a deadline for a certain procedure to be initiated – for example, a prosecutor filing criminal charges, or an injury victim filing a claim. With regard to audits, extending the statute of limitations gives the IRS more time to assess tax.

Sacramento CPAs Providing Audit and Tax Preparation Services in CA

A tax audit could probe three years back into your filing history, six years back into your filing history, or potentially even longer. If you are worried that you or your company may be at risk for being audited, or if you have recently received a letter from the IRS stating that you have been selected for a tax audit, the best and most effective course of action is to immediately bring the audit to the attention of an experienced CPA for guidance.

At Cook CPA Group, our knowledgeable team of accountants and consultants brings more than 20 years of experience to each tax matter we handle. We provide a range of IRS audit services for businesses and individuals in the Sacramento region, including assistance with FBAR and FATCA compliance. To discuss how our Sacramento CPA firm can help you or your business with an IRS tax audit in California, contact Cook CPA Group at (916) 432-2218 for a confidential, free consultation.