How Many Years Back Can the IRS Audit a Business?

According to E Taxes.com, the amount of time that the IRS has to audit a business is going to vary based on the circumstances. Generally, however, the IRS has three years to audit a back return but up to ten years to go back and collect back taxes.

While there is a general three-year statute of limitations rule for audits and a ten year limit for collecting back taxes, there are a whole host of caveats and exceptions associated with these rules:

• If a taxpayer or business omits "additional gross income in excess of 25% of the amount of gross income stated in the tax return" the statute of limitations for an audit can be extended to a six year statute of limitations instead of a three-year time limit.
• If a fraudulent tax return was submitted, then the IRS may have a longer period of time. 
• State taxes may have no statute of limitations for collecting back taxes.

As you can see, while the three-year statute of limitations is the general time limit for the IRS to audit a business, there are any number of different caveats that can apply to this information. This means you should consider talking with your accountant or with a trusted tax adviser if you believe that you are facing an audit.

In addition, to be on the safe side, most experts recommend keeping back tax records for seven years in the case of an audit so you will want to make sure you keep your old business papers for at least this long. Some people may choose to keep the records for ten years if they are extra cautious. After ten years, however, you are generally safe to dispose of the records since the time period for collections should be passed.