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When it comes to audits, just how far is the IRS' reach?

When it comes to taxes and the Internal Revenue Service, timing is everything. Every U.S. taxpayer is well aware of the dreaded April 15 tax deadline and, if missed, the October 15 tax extension deadline. In cases where a taxpayer fails to file or pay his or her taxes, again timing is crucial as hefty fines and interest on unpaid tax amounts accrue on a daily basis. The clock is also ticking in cases where an individual is audited as the IRS must abide by timeframes dictated by the statute of limitations.

When it comes to audits, the IRS typically requests tax documentation and information going back three years. It's important to note, however, that, depending on the circumstances, the agency can request documentation going back much farther.

Frequently when conducting an audit, the IRS will request an extension of time. In most cases, it's advisable to agree to the extension. There may, however, be times when it's more advantageous for a taxpayer to seek legal advice as he or she may choose to take steps to "limit the time or scope," of an audit's extension.

There are also times when an extension is automatically granted. For example, if a taxpayer fails to claim more than one-quarter of his or her income, the IRS can extend its reach six or more years. If an individual failed to file any tax return, the IRS can request documentation from as far back as they like.

Tax matters, particularly those pertaining to audits and criminal tax matters, are complex. If faced with one or both of these realities, it's important to consult with an attorney who handles tax matters and who has a comprehensive understanding of the most-recent rules and procedural laws and limitations.

Source: Forbes, "Think IRS Can Audit Three Years? Now, You Better Worry About Six," Robert W. Wood, "Aug. 3, 2015

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