“How far back can they go?” is the first question in almost every crypto consultation. The honest answer is that it depends on what you filed, what you left out, and why. The rules are in IRC 6501, and they are more specific than most people expect.

Here is how they apply to crypto, with the traps that make old crypto years more dangerous than old wage years.

The general rule: three years from filing

IRC 6501(a) says tax must be assessed “within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed).” If you filed late, the clock starts when you filed, not on the due date.

IRC 6501(b)(1) adds that a return filed early is treated as filed on the due date. File in February, and your three years still start in April.

One more detail from 6501(a): “return” means your own return, not an information return someone else filed about you. A broker’s 1099-DA does not start your clock. Your Form 1040 does.

Six years for substantial omissions

IRC 6501(e)(1)(A) extends the period to six years if you omit from gross income an amount properly includible that is more than 25 percent of the gross income stated in the return.

Crypto cases hit this rule two ways.

Unreported gains. For a capital asset, the amount includible in gross income is generally the gain. Leave out enough gain relative to what you reported, and the year is open for six years.

Overstated basis. This is the crypto-specific trap. IRC 6501(e)(1)(B)(ii) says “an understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.” If you reported your sales but inflated your basis, the IRS treats the resulting understatement as an omission. Big enough, and you are in six-year territory. See transferred-in crypto and basis.

Disclosure can keep an item out of the 25 percent math

IRC 6501(e)(1)(B)(iii) says that in figuring the amount omitted, other than an overstatement of basis, an amount is not counted if it was disclosed in the return or an attached statement “in a manner adequate to apprise the Secretary of the nature and amount of such item.”

Notice the carve-out. Disclosure helps with omitted items, but the statute expressly excludes overstatements of basis from that relief. You cannot disclose your way out of an inflated basis for six-year purposes.

No return: no limit

IRC 6501(c)(3) says that in the case of failure to file a return, the tax may be assessed “at any time.”

This is the rule that keeps old crypto years alive for non-filers. If you made money trading in a year and never filed for that year, there is no statute of limitations running in your favor. Waiting does not close the year. Filing does.

Fraud: no limit

IRC 6501(c)(1) says that in the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed “at any time.”

The IRS has to prove fraud. In Tax Court, Rule 142(b) says the burden on the fraud issue is on the Commissioner and must be carried by clear and convincing evidence, consistent with IRC 7454(a). But if the IRS can carry that burden for a year, that year never closes. The crypto-specific indicators the IRS looks for are listed in the IRS crypto fraud indicators.

The Supreme Court made a related point in United States v. Powell, 379 U.S. 48 (1964): for a year that can only be reopened for fraud, the IRS does not have to show probable cause of fraud to get a summons enforced. The government must show a legitimate purpose, possible relevance, that the information is not already in its possession, and that required administrative steps were followed.

Extensions by agreement

IRC 6501(c)(4) lets you and the IRS agree in writing, before the period expires, to extend it. In an examination, the request usually arrives as Form 872, Consent to Extend the Time to Assess Tax, with Letter 907 and Publication 1035, Extending the Tax Assessment Period. See IRM 25.6.22.

IRC 6501(c)(4)(B) requires the IRS to notify you of your right to refuse to extend, or to limit the extension to particular issues or a particular period, each time it asks.

Refusing is a right, not always a good idea. If you refuse, the examiner may simply close the exam with the adjustments as they stand. Publication 5 also notes that before an examination case goes to Appeals, IRS policy may require more than 365 days remaining on the statute, and if you choose not to extend, Appeals will not accept the case. Whether to sign, and whether to limit the consent, is a strategic call.

John Doe summonses can stop the clock

IRC 7609(e)(2) suspends the 6501 period for the people a summons concerns, beginning six months after service if the summoned party’s response is unresolved, until the response is resolved. For a John Doe summons, IRC 7609(i)(4) requires the summoned party to notify the covered people of the suspension. See how John Doe summonses work.

Working it out year by year

Here is the sorting I do for every crypto year on the table:

  • Did you file a return for the year? If not, the year is open under 6501(c)(3).
  • When was it filed? Count three years from the later of the filing date or the due date.
  • Did you omit gain, or overstate basis, by more than 25 percent of the gross income stated? Then count six years.
  • Is there any fraud risk on the facts? Then assume the year could be open indefinitely, and get counsel.
  • Did you sign a Form 872? Then the agreed date controls.
  • Were you within a John Doe summons that the exchange contested? Then check for suspension.

Do this before you decide whether to amend anything. Amending a closed year can hand the IRS information it could not otherwise use. Leaving an open year wrong can cost you penalties you could have avoided. The answer is different for each year, and that is the point.

A worked example

Take a taxpayer who filed a 2021 return on time, in April 2022, reporting $120,000 of wages and nothing else. In fact, she sold crypto in 2021 for a $50,000 gain she did not report.

Start with three years: April 2025. But the omitted $50,000 is more than 25 percent of the $120,000 of gross income stated on the return. Under IRC 6501(e)(1)(A), the period is six years, which runs to April 2028. The year is open in October 2026.

Change one fact. She reported the sale but claimed basis of $95,000 instead of the true $45,000, turning a $50,000 gain into zero. The understatement comes from overstated basis, which IRC 6501(e)(1)(B)(ii) treats as an omission from gross income. Same six years. And because it is a basis overstatement, the disclosure rule in 6501(e)(1)(B)(iii) does not help her.

Change it again. She never filed a 2021 return at all. IRC 6501(c)(3) applies, and there is no deadline.

One taxpayer, one sale, three different answers. That is why I do this analysis year by year before anyone amends anything.

And if the facts look like fraud rather than a mistake, IRC 6501(c)(1) means the year never closes, regardless of which of those three versions applies.

Keep in mind, too, that the clock is about assessment. Once tax is assessed, collection runs on its own separate timeline, which is a different statute and a different article.