On 4/15 of every year, us tax practitioners are happy for two reasons. First, the tax season is basically over. But more importantly is the number two reason. Tax returns filed more than 3 years ago can generally be no longer changed by the IRS.
3 Years to Make Adjustments
Per Section 6501(a) the IRS has three years from the filing date of your tax returns to make changes to the return. For example, your 2012 tax return is filed before 4/15/13. The IRS will have to 4/15/16 to make any changes to your 2012 tax return. If your 2012 tax return is filed late on 1/12/14, the IRS will have to 1/12/17 to make any changes to your 2012 tax return.
On 4/15/13, the IRS will generally no longer be able to make changes your 2009 tax return. The 2009 tax returns were due on 4/15/10. If you filed your 2009 tax return by the 4/15/10 due date, the IRS will not be able to make changes to your 2009 tax return after 4/15/13.
There are exceptions. There is no limitation period for returns that are false or fraudulent, willful attempt to evade tax or not filed.
Gross Understatement of Income, 6 Years to Make Adjustments
Per Section 6501(e)(1)(A) the three year rule extends to six years if you omit gross income by more than 25%. Your 2008 return was filed timely by 4/15/2009. The return was audited and the income was adjusted by more than 25%. The IRS can make changes to your 2008 return. An example of a 25% gross understatement would be reporting $100,000 of sales on the tax return but the IRS determines that sales of $130,000 should have been reported. The IRS will have six years or to 4/15/2015 to make changes to your 2008 tax return due to the greater than 25% omission of gross income.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.