No one wants to go through a tax audit. The proceedings are often stressful and tedious, even for those who made every effort to file an accurate return, and depending on the auditor’s findings, you could face serious repercussions, financial or otherwise. Fortunately, only the returns from the past three years are at risk of being audited—most of the time. In certain scenarios, though, a tax attorney will warn clients that this statute of limitations does not apply.

A Tax Attorney Explains the Exceptions to the Statute of Limitations Regarding Audits

1. Unfiled Returns

There is technically no statute of limitations for assessing taxes on an unfiled return. The IRS can theoretically go back a decade or more to investigate unfiled taxes; however, in most cases, they only ask delinquent individuals to file returns from the past six years. This allows filers to catch up financially, but they should keep in mind that the IRS will impose a monthly failure-to-pay penalty on any returns for which they owed taxes. If the amount past due is overwhelming, a tax attorney can help settle the debt.

2. Substantial Errors

The IRS typically has six years to audit a return that contains inaccurate information. For this extended statute of limitations to apply, the error or misstatement must be significant. For example, if you understate your income by more than 25%, you can expect the IRS to delve into the matter, and they will have up to six years to do so.

3. Foreign Assets

When a return includes foreign assets, the IRS has six years to audit it. If you have any streams of foreign income, it is wise to turn to a seasoned tax preparer when filing because the penalties for misreporting the funds, whether willfully or accidentally, can be severe. You can easily accrue tens of thousands of dollars in penalties, not to mention late fees for every month that you don’t pay the original taxes owed.  

If you are currently facing an audit or want to prevent any future financial issues, Lance S. Cox Attorney at Law will help. Based in Cincinnati, this accomplished tax attorney has more than three decades of experience. In addition to tax preparation, his areas of expertise include estate planning and probate. Visit the firm online or call (513) 528-6000 to schedule an initial consultation today.