IRS Tax Tip 2021-149, October 7, 2021
Taxpayers interacting with the IRS have the right to finality. This right comes into play for taxpayers who are going through an audit. These taxpayers have the right to know when the IRS has finished the audit. This is one of ten basic rights — known collectively as the Taxpayer Bill of Rights.
Here’s what taxpayers in the process of an audit, should know about their right to finality:
- Taxpayers have the right to know:
- The maximum amount of time they have to challenge the IRS’s position.
- The maximum amount of time the IRS has to audit a particular tax year or collect a tax debt.
- When the IRS has finished an audit.
- The IRS generally has three years from the date taxpayers file their returns to assess any additional tax for that tax year.
- There are some limited exceptions to the three-year rule, including when taxpayers fail to file returns for specific years or file false or fraudulent returns. In these cases, the IRS has an unlimited amount of time to assess tax for that tax year.
- The IRS generally has 10 years from the assessment date to collect unpaid taxes. This 10-year period cannot be extended, except for taxpayers who enter into installment agreements or the IRS obtains court judgments.
- There are circumstances when the 10-year collection period may be suspended. This can happen when the IRS cannot collect money due to the taxpayer’s bankruptcy or there’s an ongoing collection due process proceeding involving the taxpayer.
- A statutory notice of deficiency is a letter proposing additional tax the taxpayer owes. This notice must include the deadline for filing a petition with the tax court to challenge the amount proposed.
- Generally, a taxpayer 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. This could happen, for example, if a taxpayer files a fraudulent return.