What is the time limit for the IRS to audit me?

A lot of people ask me how long should they worry about being audited. For the most part, you can be audited at any time within 3 years from when you FILE your return. But, there are some exceptions to that. For instance, if you substantially understate your gross income by 25% or more, the time is 6 years. If the IRS can prove civil fraud, there is no time limit.

What is civil fraud?

IRM 25.1.6.1 states:

“Civil fraud penalties will be asserted when there is clear and convincing evidence to prove that some part of the underpayment of tax was due to fraud. Such evidence must show the taxpayer’s intent to evade the assessment of tax, which the taxpayer believed to be owing. Intent is distinguished from inadvertence, reliance on incorrect technical advice, sincerely-held difference of opinion, negligence or carelessness. In the case of a joint return, intent must be established separately for each spouse as required by IRC 6663(c) . The fraud of one spouse cannot be used to impute fraud by the other spouse. Thus, the civil fraud penalty may be asserted only on one spouse, unless there is sufficient evidence that both spouses participated in the fraudulent act(s) resulting in the underpayment reported in their joint return.

When considering the civil fraud penalty under IRC 6663 the fact that a taxpayer has no tax due is not sufficient to assert the civil fraud penalty. An affirmative act of fraud, as stated in IRM 25.1.1.3(2) , Affirmative Acts (Firm Indications) of Fraud, must also be present”.