Why is the statute of limitations such an essential factor in an IRS audit? Should you approve a request from the auditor for a waiver of the statute of limitations in an IRS audit? This is often a complex question, and if you are not represented by an experienced tax attorney in the audit, you will not know what is best in your unique case.
In some cases, a request to extend the statute of limitations can present an opportunity for the IRS to expand the scope of the audit and increase the amount of tax you will owe. In other cases, it is in the taxpayer’s interest to agree to a waiver of the statute of limitations, thereby increasing leverage and enhancing the ability to achieve a better result upon appeal at the conclusion of the audit. How would a U.S. taxpayer know the difference?
Generally speaking, in the absence of fraud or failure to file, the IRS has three years from the date a return is filed in which to complete an audit. It is not uncommon for the IRS to wait until late in the second year or early in the third to initiate an audit, and there are many cases where the audit runs up against the three-year statutory limit.
The key to answering the question of whether or not to agree to extend the statute of limitations in an IRS audit lies in the information the IRS has already included in the official “file” of the audit. Any request by the taxpayer for an audit appeal after the final IRS Notice of Determination will be based on the information already contained within the audit file. New information cannot be introduced during the appeal process. It may, therefore, be important to consider waiving the statute of limitations to ensure that all crucial documents, figures, and updated forms are included within the audit file.
However, in other cases where an audit is dragging on or where the IRS is attempting to expand the scope of the audit, an experienced IRS tax attorney can use the approaching deadline associated with the statute of limitations to drive the audit to completion to gain a better result for the taxpayer.
The decision to agree or decline a request by the IRS to extend the statute of limitations in an audit will be based on several complex factors. This is why it is important to seek the advice of the experienced and proven IRS audit and tax attorney if you are facing an IRS audit.
