Thanks to a bill passed by Congress in 2015, the rules relating to how the IRS may audit taxpayers have been significantly expanded. The basic rule has long been that for most cases, the IRS has up to three years to audit a tax return after the filing date. Like EVERYTHING else, there are exceptions to this rule. The most common exceptions involve cases where a taxpayer failed to include more than 25 percent of their income. In these cases (defined as “tax evasion”), the IRS is allowed up to six years to perform an audit.
Congress wielded more power to the IRS when it overruled the Supreme Court’s ruling that “overstating your tax basis” is different from omitting income. The IRS can now audit you if they believe you are overstating your tax-deductible losses. A very red flag governing a broad spectrum of issues, this new rule is one of may good reason to contact a professional if you have concerns about additional tax assessments or other delinquent income tax debt relating to prior returns.