We usually have this question in mind “how long does the IRS have to audit tax returns?” The answer is almost three years! Usually, it takes three years to audit, but sometimes it is longer, like for a good four to five years…or maybe around six years…alright, it is the final answer—six years, and not a year more than that.
You would probably think that the IRS agent with a crisp and formal dress with a tie will be specific about the answer to this question. The IRS says that it audits the tax returns as soon as possible after they are filed. That means mostly audits apply to returns that were filed within the last two or three years.
For the inconsistent taxpayers whose starting audit leads the investigators to look into the past, the agency keeps its options open for them. In such cases, they might go for the clues back up to five-six years. The IRS says that they include the returns filed within the last three years in an audit. If they encounter a significant error, it may result in the addition of extra years. But they do not usually go beyond six years.
The good part is that most people like us, who obey the rules and laws, are mostly held to the limit of three years. That is why the advice is given that to keep the tax returns at least for three years.
First of all, let’s know about the IRS.
What is the IRS?
The IRS stands for Internal Revenue Service. It is a state tax authority in the United States of America that makes an income tax audit for the examination of the business and individual tax returns. The agency contacts the taxpayers by mail to let them know that they are selected for the audit. The IRS does not call or never start an audit in person.
Why will you be selected for the audit?
The IRS uses several different methods to select the taxpayers for an audit. It is not always that there is a problem in your tax case, so that you will get selected for an audit.
- Computer screening and random selection: Sometimes, the tax returns get selected based only on the statistical formulae. The IRS conducts the National Research Program to develop the criteria from the audits of random samples of returns that are statistically valid. They compare your tax return against those norms.
- Related examinations with other returns: The IRS may select your returns if they involve some issues or the transactions with other taxpayers who were selected for the audit.
What should you provide in an audit?
The IRS always sends you a written request about the essential documents they want. Those documents must support the income, credits, or deductions claimed by you on your return. These are the documents available to you because you would have used them to file your return. So the good part is no need to create new documents. Also, the records requested by the IRS include receipts, bills, canceled checks, and legal papers such as criminal defense papers, divorce settlements that include custody agreements, tax preparation, or property acquisition.
The IRS says that you should never mail your original documents or records. Instead, you should send copies of them.
Also, the IRS accepts the electronic records that are developed by the tax software. So they might request you to provide those documents in addition to the other types of records. In this case, you should contact your auditor to confirm the important documentation.
What are the ways of the IRS to conclude an audit?
Three ways are listed below to conclude an audit.
- No change: This is the audit in which there is no change in the end results, and all of the items get reviewed.
- Agreed: In this audit, the IRS suggests the changes, and you get agreed with them.
- Disagreed: Here, the IRS suggests the changes that you understand, but you refuse to accept them. You disagree with the changes.
What are your rights in a tax audit?
As a taxpayer, you have some rights that you must not underestimate. These are your rights:
- You have a right to have privacy and confidentiality in your tax case.
- You have a right to ask the IRS why they need the information and how they will use it. You can also know what will happen if you do not provide the information that they ask for.
- You have a right to expect professional and respectful treatment from the IRS.
- You also get a right to get an authorized representative, or you can represent by yourself.
- You have the right to disagree with the findings if they do not satisfy you. You can appeal a disagreement between the IRS and the court.
What should you do if you need more time to respond?
There will be cases that you will require more time to think, or you may have other responsibilities. In such situations, there are some steps you can take.
- If your audit is conducted by the mail and you need time to give a response, you should fax your request in writing to the number provided on the IRS letter you received. If you can’t do the fax, simply mail your request to the mail address mentioned on the IRS letter. The IRS can grant you an automatic 30-day extension, or they will contact you if they are unable to do so.
- If the audit is being conducted by an in-person interview, you should consider contacting the auditor assigned to your audit. You can contact him/her to make a request for an extension. If you feel it’s necessary, you can try contacting the manager of the auditor.
What is the act of limitation?
The IRS needs to have a reasonable timetable for the investigations of tax. Congress has put the deadlines for the agency for making the tax refunds and assessing the taxes, and this is the statute of limitation. This act limited the IRS to generally only looking at the tax returns that were filed in the last three years. This statute is also applied to the taxpayers. You get so much time to file a tax credit or refund claim.
You can ask to increase the period of assessment. The IRS looks for the returns that are most likely to run out of time. Then they request the taxpayer to extend the statute of limitation assessment. This is probably good news for you because this extra time can be used to collect more documents to support your tax situation. You can request an appeal if you are not satisfied with the findings; you can also claim a tax credit or tax refund.
You can always think and decide whether you want to extend the statute of limitation or not. But then the IRS agent handles the situation according to the available information. If you have got plenty of information that you would like to furnish, the refusal of the statute of limitation can be a losing game.
What is consent?
Consent is basically a written agreement between you and the IRS when you both get agreed on extending the statute of limitation. A consent form is provided by the IRS for this purpose.
The consent applies to all the taxes. Only the exception is the estate tax. There are two categories of consent. They are fixed-date and open-ended consents. You can understand that the fixed-date consent extends the statute to a specific date, whereas open-ended consent does not specify an ending date for extending the statute. As long as consent extends an examination period that is essential for your case, the IRS will request it.
What are the things you should be doing when asked to sign a consent?
You don’t need to accept the statutory extension. It is not mandatory. If the IRS requests you to sign a consent, you can try these options when you do not want to accept all the terms related to the extension period.
By negotiating the terms, you and the IRS can make an agreement on the issues of the tax that will be covered by the consent. It will also include the period for the extension.
You can get consent that will extend the original examination rules to a later date. You can sign that consent.
If you are doubtful, you can refuse to sign the consent in which the IRS gets a right to take actions for enabling the assessment of any tax. The agency determines these are the taxes owned by you.
What is the duration of the audit?
The IRS does not give a specific answer on how much time is required to complete an audit, and they can take as long as they need. The agency says that the time may vary based on the type of the audit, the availability of the required information, the complexities of the issues, the availability of you and the IRS, and your agreement or disagreement with the findings of the meeting.
There is no rule that you must agree with all the findings of a meeting. You should know that you can disagree with the claims you are not satisfied with. If you want to take this step, you can request a conference with the IRS Manager with the Alternative Dispute Resolution. If there is enough time for the IRS audit, you can also file an appeal. You can find out about the time by the statute of limitation.
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