Fortunately for taxpayers, audits don’t last forever and the IRS cannot audit a tax return from any year they want.
In most circumstances, the IRS generally audits tax returns within the past 2 years. The Internal Revenue Code, however, provides a statute of limitations that allows the IRS to audit any return within the past 3 years. For example, if you received a notice of audit in 2016, the IRS can audit a return filed in 2013, 2014, and 2015.
There are a few situations in which the IRS can audit tax returns older than 3 years.
Omission of Income
If the IRS finds that a significant amount of gross income, 25% or more to be exact, is missing from a return, then the statute of limitations is extended. The IRS will then have 6 years to audit that return.
Return Not Filed
If you do not file a tax return for a given year, the IRS does not have a time limit to audit or tax you for that year.
If the IRS finds evidence of fraud or intent to evade taxation within a tax return, they do not have a time limit to audit or tax you for that year.
The Taxpayer Agrees to Extend Statute of Limitations
If an audit is not resolved in time, you may be asked to extend the statute of limitations in order for the IRS to assess additional tax. Agreeing to extend the statute will allow you more time to gather more documentation to substantiate your claim, appeal if you do not agree with the audit results, or to claim a tax refund. You should think carefully before you agree, however. Extending the statute of limitations also gives the IRS more time to complete the audit and find something potentially damaging to you
You can extend the statute of limitations by filling out an IRS Form 872 which extends the audit to a specific date or a Form 872-A that extends the audit indefinitely (this can be revoked by submitting a Form 872-T).
The amount of time each audit takes varies and is dependent on the complexity of the case, the availability of documents, scheduling, and whether or not the taxpayer decides to appeal. Auditors are advised to complete audits within 28 months of the date you filed your tax return or the date it was due, whichever was later. The IRS is legally allowed 36 months from the date filed to close an audit, but the additional 8 months are to spare time for the appeals process.