For many who reside in the state of New York, one of their biggest fears is to be audited by the Internal Revenue Service. What are IRS Audits? People who are concerned about this occurring probably believe that three years after a return is filed, they are in the clear. While it is true the statute of limitations for tax returns is generally three years, under certain circumstances it is possible that period could extend to six years. In some cases it could go even longer.
The audit period could extend from three to six years in situations where in completing the tax return, the tax player substantially understated his or her income. But just what does that mean? This situation arises when the taxpayer fails to account for more than a quarter of his or her income. The statute of limitations will start to run on either the date the filing is due or the date in which it is filed—whichever is later.
The IRS could also extend the audit period to six years in situations where the taxpayer has omitted more than $5,000 in foreign income. This might arise in situations where the taxpayer has accrued this income as a result of interest on an account that is overseas.
As we mentioned above there are other situations where the statutes of limitations could run even longer. For example, when forms are missing, it is possible that the IRS might attempt to reach back more than a decade.
Steps should be taken along the way to try to prevent audits from occurring. When they do however, a tax attorney can be of great help in minimizing the damage. Therefore to answer the question, What are IRS audits? They are a time to be careful, document as much as possible and be careful.