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General Rule:

The IRS has up to three years from the due date of a tax return, or the date of filing, which ever is later (a tax return filed prior to the due date is treated as if filed on the due date), to assess all income taxes due. For example, a taxpayer who filed his 2001 tax return on April 15, 2002 cannot have that return audited or and assessed additional tax after April 15, 2005 because the statute of limitations will have run out.

Exceptions:

False or No return

There is no restriction on the amount of time the IRS has to audit and assess additional tax if any of the following apply:

• No return was filed
• The return was false or fraudulent
• There was a willful attempt to evade tax

25 percent Omission of Income

If a taxpayer omits more than 25 percent of the gross income stated in the original tax return, the IRS will then have a six year period to audit and assess tax on that return (instead of the three years described in the general rule above).

Return prepared by an IRS Official

A return prepared by an IRS official or employee in the situation of a taxpayer who has not filed a return will not start the statute of limitations. Simply stated, if an IRS agent or employee prepares a return for a taxpayer who did not file a return and assesses tax on that return and then later discovers that they prepared the return incorrectly, the IRS has no restrictions on the amount of time that they can come back and reassess additional tax.

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