If IRS selects your return for an audit, the audit will generally cover a 3 year period. That is the statute of limitations IRS has to audit a tax return. More specifically, this is 3 years from the date you file your return. If you filed the last 5 years of your tax returns last year, IRS will have a couple more years to open all those returns for an audit.
If you have a “substantial understatement of income” (you fail to report 25% or more of your gross income), IRS can go back 6 years.
If you fail to file a return or file a fraudulent return – there is NO statute of limitations. To have a valid return if you file a paper return, it needs to be signed by you and, if you are married, by your spouse.
What is the statute of Limitations on an IRS Audit?
While the typical statute of limitations for an IRS audit is 3 – 6 years, there are exceptions that can give the IRS extra time to audit you. For instance, if you neglected to report more than 25% of your income, the three-year statute of limitations is extended to six years. This same rule may apply to tax basis if you understate the value of an asset to avoid capital gains taxes, thereby altering the basis from which the taxable amount is calculated. This kind of fraud may result in the statute of limitations being extended indefinitely.
Reasons for an IRS Tax Audit
In particular, they have up to six years to audit if you have omitted more than $5,000 of foreign income. Further, there is no time limit if you have never filed a return or have done so fraudulently. Additionally, there are certain forms that the IRS can audit indefinitely; these include: – Form 5471, for foreign ownership of a corporation – Form 3520, for gifts or inheritance from foreign nationals – Form 8938, for overseas assets Finally, once a tax assessment is made, the IRS will typically have a collection statute of ten years.
Why Hire an IRS Audit Tax Attorney?
An IRS tax audit can involve targeted questions, and the revenue agent can ask for proof of virtually every item. Frequently, the IRS requests more time to audit. Your IRS Audt Revenue Agent will ask you to sign a form extending the statute of limitations, usually for a year. If you don’t sign, IRS will send you a tax bill, often based on unfavorable assumptions. Your qualified Tax Attorney will advise you to agree to the extension. By working with a tax lawyer you may be able to limit the time and scope of the audit.
The following is content from the IRS Audits website to help you understand the perspective of the IRS:
Why is a return selected for IRS audit?
- Random selection and computer screening – sometimes returns are selected based solely on a statistical formula. We compare your tax return against “norms” for similar returns. We develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.
- Related examinations – we may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
Next, an auditor reviews the return. They may accept it; or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examination group.
Does IRS Audit Amended Returns more than Unamended Returns?
Filing an amended return does not affect the selection process of the original return. However, amended returns also go through a screening process and the amended return may be selected for audit. Additionally, a refund is not necessarily a trigger for an audit.
How will the IRS conduct my audit?
The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit). Remember, you will be contacted initially by mail. The IRS will provide all contact information and instructions in the letter you will receive.
If audited by mail, your letter will request additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. If you have too many books or records to mail, you can request a face-to-face audit. The IRS will provide contact information and instructions in the letter you receive.
Depending on the issues in your audit, IRS examiners may use one of these Audit Techniques Guides to assist them. These guides will give you an idea of what to expect.
What do I need to provide?
The IRS will provide you with a written request for the specific documents we want to see. Here’s a listing of records the IRS may request.
The IRS accepts some electronic records that are produced by tax software. The IRS may request those in lieu of or in addition to other types of records. Contact your auditor to determine what we can accept.
The law requires you to keep all records you used to prepare your tax return – for at least three years from the date the tax return was filed.
What if I need more time to respond?
For audits conducted by mail – Fax your written request to the number shown on the IRS letter you received. If you are unable to submit the request by fax, mail your request to the address shown on the IRS letter. We can ordinarily grant you a one-time automatic 30-day extension. We will contact you if we are unable to grant your extension request. However, if you received a “Notice of Deficiency” by certified mail, we cannot grant additional time for you to submit supporting documentation. You may continue to work with us to resolve your tax matter, but we cannot extend the time you have to petition the U.S. Tax Court beyond the original 90 days.
For audits conducted by in-person interview – If your audit is being conducted in person, contact the auditor assigned to your audit to request an extension. If necessary, you may contact the auditor’s manager.
How long does an audit take?
The length varies depending on the type of audit; the complexity of the issues; the availability of information requested; the availability of both parties for scheduling meetings; and your agreement or disagreement with the findings.
Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes. These rights include:
- A right to professional and courteous treatment by IRS employees.
- A right to privacy and confidentiality about tax matters.
- A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
- A right to representation, by oneself or an authorized representative.
- A right to appeal disagreements, both within the IRS and before the courts.
How does the IRS conclude an audit?
An audit can be concluded in three ways:
- No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
- Agreed: an audit where the IRS proposed changes and you understand and agree with the changes.
- Disagreed: an audit where the IRS has proposed changes and you understand but disagree with the changes.
What happens when you agree with the audit findings?
If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted.
If you owe money, there are several payment options available. Publication 594, The IRS Collection Process, explains the collection process in detail.