As taxpayers, we all have a set of fundamental rights when it comes to interacting with the IRS, which are referred to as the Taxpayer Bill of Rights. One of those rights---The Right to Finality---is especially important if you are under audit by the IRS.
In short, the Right to Finality entitles you to know: (1) the maximum amount of time you have to challenge the IRS's position; (2) the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt; and (3) when the IRS completes an audit.
The IRS generally has three years from the date you file your return to assess any additional tax, interest, or penalties for that tax year. However, there are limited exceptions to the three-year rule. For instance, if you fail to file a return for a specific year or if you file a false or fraudulent return, the IRS has an unlimited amount of time to assess additions to tax against you for that tax year.
The IRS generally has 10 years from the date of assessment to collect any unpaid taxes, interest, or penalties. This 10-year period cannot be extended, absent certain circumstances, unless you enter into an installment agreement with the IRS or the IRS obtains a court judgment against you. The 10-year collection period may be automatically suspended under certain circumstances, including if you file for bankruptcy or if you are involved in an ongoing collection process with the IRS.
Proper Notice to be Given
By statute, the IRS is required to provide you notice of any proposed additions to tax (commonly known as a "statutory notice of deficiency") prior to making any official assessments against you for said tax, interest, or penalties. A statutory notice of deficiency is simply an official letter proposing the additional tax amounts (and any interest or penalty amounts) you allegedly owe. The notice must inform you of the deadline (i.e., 90 days) for filing a petition with the United States Tax Court to challenge the proposed tax amounts.
Generally, you will only be subject to one audit per tax year. However, the IRS may reopen an audit for a previous tax year if the IRS finds it necessary. For example, this could occur if you file a fraudulent return or if you fail to file a return despite being required to do so.
For more information, see the following resources:
About the Author
Lars Kroner is the Chief Operating Officer for MyTaxRights, LLC. As COO, Mr. Kroner leads MTR's educational outreach initiatives that teach individuals how to self-prepare and file their taxes using free web-based tax preparation services. Mr. Kroner earned his Master's in Business Administration from American University's Kogod School of Business and he is the Project Manager of Growth for a D.C.-based fitness company. He is also the co-founder of the Center for Advancement of Tax Equity, a 501(c)(3) nonprofit that sponsors tax education and outreach initiatives aimed at improving the quality of life and economic conditions for individuals from marginalized communities.