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My understanding is that the audit must be complete before the 3 year deadline (unless fraud or other specific extension) or the taxpayer isn't liable. Notice for a routine audit a day before or during the third is unlikely, because of the risk that after spending significant time in the audit that it might not complete before the 3 year deadline.

You've got the right idea. But in practice it works a bit differently.

If there is some risk that the audit will take longer than the statute of limitations, the auditor will generally ask the taxpayer to agree to an extension of the statute.

You are free to refuse to extend the statute, but the auditor will then generally complete their audit immediately, disallowing all deductions under audit. That put the taxpayer in the position of having to go to tax court to make their case.

It's usually a good idea to agree to the extension of the statute. I sometimes wait and make them ask a second time for the statute extension. Just making sure they're doing their job, you know. ;-)

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