Question

Daze filed his personal income tax for 2016 on May 4, 2017. He did not have any reasonable cause for delinquent tax filing. He also inadvertently left out his bonus income $20,000 from reporting on his tax return. His tax return without such bonus income shows $100,000 gross income.

(1)   The IRS initiated its audit on Daze’s 2016 tax return on June 3, 2020. Does the IRS have authority to audit and possibly litigate Daze’s tax return on the omission of the bonus income?

(2)   Answer only one of the following two.

i.          If so, why?

ii.          If not, is there any circumstance under which the IRS would be authorized to conduct an audit?

Answer 1

1. Yes, An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.

How far back can the IRS go to audit my return?

Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.

The IRS tries to audit tax returns as soon as possible after they are filed. Accordingly most audits will be of returns filed within the last two years.

If an audit is not resolved, we may request extending the statute of limitations for assessment tax. The statute of limitations limits the time allowed to assess additional tax. It is generally three years after a return is due or was filed, whichever is later. There is also a statute of limitations for making refunds. Extending the statute gives you more time to provide further documentation to support your position; request an appeal if you do not agree with the audit results; or to claim a tax refund or credit. It also gives the IRS time to complete the audit and provides time to process the audit results.

You don’t have to agree to extend the statute of limitations date. However if you don’t agree, the auditor will be forced to make a determination based upon the information provided.

2. In the present case since three years have been lapsed IRS may not be eligible unless there is a substantial error other factors as discussed above.

For more detailed information regarding IRS I am providing you a link

https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits#:~:text=The%20IRS%20manages%20audits%20either,accountant's%20office%20(field%20audit).&text=If%20you%20have%20too%20many,face%2Dto%2Dface%20audit.

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