How far back can the IRS go when auditing your business?
Generally, the IRS can audit your returns from any or all of the most recent three tax years. If an auditor discovers substantial errors or issues that suggest there may be reason to look further, they may add additional years to the audit’s scope. In most cases, the IRS does not look back more than six years when auditing a business, unless it suspects tax fraud or there is a complete failure to file tax returns.
How far back can the IRS go for unfiled taxes?
You are generally expected to file an income tax return each year that you have income. If your income is low enough, you might not be required to file, but it is usually a good idea to do so if you have income or credits to report.
Business entities such as corporations should file a tax return every year, regardless of income or expenses. Partnerships are required to file a return for each year that the partnership has income, expenses, or credits. Filing even in years with no income can be beneficial to maintain proper records and avoid complications later.
Failing to file could also mean forfeiting any tax refunds you are entitled to. The legal time limit for requesting a refund, in most cases, is three years.
If you owe taxes but do not file or pay when due, the unpaid amount will grow due to late filing penalties, failure-to-pay penalties, and interest calculated from the original due date — including interest on any applicable penalties. If you do not file a return, the IRS might file a substitute return and send you a notice of what it believes you owe.
The time limit for the IRS to assess and collect taxes owed does not begin until you have filed your return. If you never file, there is effectively no limit to how far back the IRS can go when auditing your business or assessing taxes due.
What happens if I don't owe taxes and don't file?
Tax filing and payment requirements are separate obligations. In most cases, small business owners must file tax returns each year, regardless of whether they owe taxes to the IRS.
While the income threshold for non-self-employed individuals changes periodically, self-employed persons are generally required to file a tax return if they earn $400 or more in net self-employment income during the year.
If you earned more than that amount and failed to file a return, the IRS may assess a penalty.
Does the IRS forgive tax debt after 10 years?
The IRS rarely forgives tax debt outright, but it does have a 10-year collection statute — meaning that, in general, the IRS has ten years from the date a tax is assessed to collect it. After that period, any uncollected tax debt may be considered uncollectible.
However, this period can be extended in certain circumstances, such as bankruptcy proceedings, installment agreements, or time spent outside the United States. Calculating the exact expiration date can be complicated, so it’s important to keep track of your assessment dates and correspondence from the IRS.
Get organized and be prepared should the IRS audit your business
Small business owners should not live in fear of being audited but should maintain organized, detailed records of revenues and expenses, including tax-related documents and receipts. In the event you receive a notice that the IRS wants to audit your returns, having your documentation ready will make the process smoother and less stressful.
To get help understanding your tax filing obligations, payment requirements, interpreting an IRS request letter, or for any other tax-related matter, reach out to a Legal Pro for affordable legal advice.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
