Small businesses can be audited by the Internal Revenue Service for a variety of reasons. For example, the IRS may audit a business because its income appears understated, or its deductions appear overstated. The IRS is subject to the same statute of limitations, or time frames, for auditing small businesses operating as sole proprietorships, corporations, limited liability companies or partnerships.
Generally, the statute of limitations for tax return audits is three years. For example, the IRS would have until April 15, 2016 to assess additional tax on a business that files a 2012 tax return on April 15, 2013. However, the IRS can reach back six years if a business erroneously fails to report more than 25 percent of its gross income. Furthermore, the IRS can audit as far back as necessary to address tax fraud, or when businesses completely fail to file tax returns.