The IRS 3 year rule sets a time limit for the IRS to audit tax returns. Specifically, the IRS generally has 3 years from the date you filed your return to assess additional tax. If no tax issues are identified within this timeframe, the return is closed and the IRS can no longer audit the return or assess additional tax.
What triggers the 3 year statute of limitations?
The 3 year timeframe begins on the later of two dates:
- The tax return due date – Usually April 15 for individual returns
- The date you actually filed the return
For example, if your tax return for 2019 was due on April 15, 2020 but you filed late on October 1, 2020, the statute of limitations would begin on October 1, 2020. The IRS would then have until October 1, 2023 to audit the 2019 tax return.
When does the IRS have more than 3 years to audit?
While 3 years is the standard time limit, there are some important exceptions where the IRS gets additional time to audit a tax return:
- You underreported income – If you underreported gross income by more than 25%, the IRS gets 6 years to audit instead of 3.
- No return filed – If you never filed a return at all, the IRS audit period does not start running. They can audit whenever they become aware of an unfiled return.
- Fraud – In cases of tax fraud, there is no time limit on audits. The IRS can audit whenever they suspect fraud.
- State adjustments – If your state tax return is audited and changed, that can trigger up to a 1 year extension on your federal audit period.
What years can the IRS audit in 2023?
Based on the standard 3 year audit window, here are the tax years generally open for a potential IRS audit in 2023:
| Tax Year | Statute Expiration |
|---|---|
| 2020 | April 15, 2023 |
| 2021 | April 15, 2024 |
| 2022 | April 15, 2025 |
Again, these dates may be extended in cases of tax fraud or substantial underreporting of income.
What can trigger an audit after 3 years?
In limited cases, even if the 3 years have passed, the IRS can still audit a return if they determine a substantial error was made. This is very uncommon, but can occur if:
- You received a refund amount that was substantially more than what you should have
- You failed to report a substantial amount of income (i.e. over 25% of gross income)
However, the IRS needs strong proof to audit beyond the 3 year window. Simply re-running calculations or disagreeing with a subjective judgment is not enough.
When does the 3 year clock restart?
In some cases, the audit window can restart, giving the IRS additional time beyond the original 3 years:
- Audit adjustments – If the IRS already audited you within the 3 year window and made changes, they get an additional 3 years to follow up from the date the adjustment occurred.
- Amended returns – Filing an amended tax return restarts the audit period, giving the IRS 3 years from the amended return date.
How far back can the IRS collect unpaid taxes?
The IRS typically has 10 years to collect any unpaid taxes after an audit or filing:
- This includes taxes owed, penalties, and interest
- The 10 year rule is stricter than the 3 year audit rule
- Even if audited beyond 3 years, the IRS cannot collect past 10 years
Some exceptions where the IRS has longer than 10 years to collect:
- No return filed – No collection statute expiration if you never filed
- Fraud – No limit if fraud involved
- Special liens – IRS lien rights can extend past 10 years
What triggers the collection statute?
The 10 year collection window runs from the latest of:
- The tax assessment date
- The filing due date
- The date you actually filed
This is similar to the audit rule, but does not reset for amended returns or audit adjustments.
What tax years can the IRS collect on in 2023?
Applying the standard 10 year collection window, the IRS can generally collect unpaid taxes for these years in 2023:
| Tax Year | Collection Expiration |
|---|---|
| 2013 | April 15, 2023 |
| 2014 | April 15, 2024 |
| 2015 | April 15, 2025 |
| 2016 | April 15, 2026 |
| 2017 | April 15, 2027 |
| 2018 | April 15, 2028 |
Can you request an audit after the 3 years?
Taxpayers do have the option to consent to an audit after the 3 year statute expiration. This is very rare, but could make sense if:
- You want to prove an invalid IRS claim of fraud
- You believe the IRS owes you a refund for years past 3 years
- You want to eliminate uncertainty about a contentious tax issue
However, voluntarily extending the audit window is risky and can result in additional taxes owed. Get professional advice before consenting.
Does the 3 year rule apply to state taxes?
The federal 3 year statute of limitations applies only to IRS audits and actions. States have their own rules governing state tax audits and collections. While many follow a 3-5 year window, check your specific state’s audit guidelines.
Can you avoid an audit based on the 3 year rule?
Relying on the 3 year limit to avoid an audit is generally not recommended. The IRS can often find ways to extend the window, especially in cases of substantial underreporting or fraud. A better approach is filing accurate returns with full disclosure.
How do you know if you are past the 3 year audit period?
The easiest way to verify that you are outside the 3 year audit window is to check the IRS transcript for your tax return. It will show the filing date and a notation that the statute has expired if 3 years have passed.
You can also calculate the timeframe yourself based on your original filing date and any exceptions that may apply to your situation.
Can the IRS audit forever?
No, contrary to common belief, the IRS cannot audit forever or for an indefinite period of time. The standard 3 year audit rule – combined with the 10 year collection rule – puts reasonable limits on IRS authority to review and contest taxes.
However, as outlined above there are still a number of exceptions where the IRS gets additional time in cases of fraud or substantial errors. Audits and collections can also restart the clocks in certain cases.
In summary:
- Standard audit window is 3 years from return filed date
- Additional exceptions for fraud, substantial underreporting
- 10 year standard collection window applies separately
- Rules limit but do not eliminate IRS audit powers
Does the 3 year rule protect against criminal charges?
No, the 3 year audit window applies only to additional IRS tax assessments and audits. It does not prevent criminal prosecution for tax fraud or evasion. The IRS and Department of Justice can file criminal charges for willful tax evasion even after the audit period has expired.
What is the typical audit process?
A typical IRS audit includes these general steps:
- Initial notice – The IRS sends a letter or notice informing you of the audit.
- Information request – The IRS asks for supporting documents on specific items.
- Examination – The audit may occur by mail, in person, or a virtual setting.
- Audit report – The IRS provides their findings and any additional tax proposed.
- Appeal – If you disagree, you have appeal options including the IRS Appeals Office.
The specific audit process can vary based on the type of audit and issues involved. The entire process generally concludes within 1-2 years unless disputed.
How often are tax returns audited?
Due to resource limitations, the IRS only audits a small percentage of returns each year. Some key IRS audit statistics include:
- Approximately 0.6% of individual returns were audited in 2021
- 1 in every 200 individual returns with income over $500k was audited
- The overall individual audit rate since 2010 has declined by over 50%
- Corporation return audit rates have declined but remain higher than individuals
Your chances of an audit depend on issues flagged in your return, income thresholds, and tax issues in your profession or industry.
How many years of tax returns should you keep?
To comply with the 3 year audit window and 10 year collection window, the IRS recommends keeping tax returns and supporting documents for at least 3 years. However, in practice it is advisable to keep returns for 6-10 years to be safe in case any issues arise down the road.
Some experts recommend keeping tax returns indefinitely, especially if they document special tax circumstances that may impact future returns.
Conclusion
The IRS 3 year rule provides important limitations on how long the IRS can wait before auditing a tax return. While the standard window is 3 years, numerous exceptions allow the IRS to still challenge returns past 3 years in cases of fraud or substantial errors. By understanding the statute of limitations rules, taxpayers can properly comply with IRS requirements while also exercising their audit protections.