HOW MANY YEARS BACK CAN THE IRS AUDIT
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Are you trying to figure out how many years back the IRS can audit? If so, this post should help! Generally, there is a 3 year statute of limitations for the IRS to notify you of an audit. The statute of limitations is extended to 6 years if the taxpayer omits gross income in excess of 25% of the amount of gross income stated in the return filed with the IRS. There is no statute of limitations in the case of a false tax return or fraudulent tax return filed with the IRS with the intent to evade any tax.
An audit by the IRS is an examination and review of a person’s or companies accounts and financial information to make sure that the information was correctly reported according to tax laws and to make sure that the tax amount requested is right. Read more about IRS Audits Below.
Why was I selected for an auditing?
Being picked for an audit doesn’t always suggest that there is an issue. The IRS uses different methods for selection:
- Related examinations: The IRS may pick your return when they have issues with transactions with other taxpayers like investors or business partners, whose returns were picked for an audit.
- Random Selection and compute screening: Sometimes returns are picked based on a statistical formula. Your tax return is compared against the norm for other returns. The norm was created from prior audits of valid return samples. The IRS uses this particular program to update return information.
Next, an auditor will review the return. The IRS may accept this return or if there are questionable items, the auditor will mark the items and then send your return to the examining group.
Note: Filing an amended return doesn’t affect the selection process of your original return. The amended return will also go through the screening process and the amended return could be picked for auditing. Additionally, a refund isn’t a trigger for an audit.
How will I be notified of an audit?
If your account is picked for audit, you will be notified by mail. We do not start an audit by telephone.
How does the IRS conduct the audit?
The IRS will manage the audit either during an in person interview or by mail to review your records. The interview may be at the IRS office or at your home, place of business, or accountants office. You will only be contacted by mail. The IRS will provide all instructions and contact information in the letter you receive.
If your audit is done by mail, our letter will request additional information about items on your tax return, such as itemized deductions, income, and expenses. If you have too many records or books to mail, you can request an in person audit. The IRS will then provide additional instructions and contact information.
What will I need to provide?
The IRS will give you a written request for the documents they want to see. The IRS will accept some electronic records that are provided by tax software. The IRS may ask for those instead of traditional records. Contact your auditor to see what is accepted.
The law requires that you keep your records used to file your tax return for at least 3 years after you file. How will I know if the IRS received my response?
For any delivery service, you can request confirmation that it has been received. For example, if you use USPS, you can request additional services such as signature for confirmation.
What if I need more time to respond?
For any audit done by mail: Fax the written request to the number provided on the IRS letter. If you cannot submit the request by fax, mail the request to the address on the letter. We can grant you a one-time 30 day extension. We will contact you if we can’t grant your extension. If you receive a Notice of Deficiency by mail, we can’t guarantee additional time for any supporting documentation. You may continue to work with us to resolve your issue, but we can’t extend the time you were granted, you will have to petition the US tax court beyond the original 90 days.
For an audit done in-person: If your audit is being done in person, contact your auditor and request an extension. If needed, you could contact the auditor’s manager.
How far back can the IRS go on a return audit?
Normally, the IRS can include returns that have been filed in the last 3 years. If there is a big error, they could go back up to 6 years. The IRS will try to audit a tax return as soon as possible after they have been filed. Most audits will be of returns filed within the last 2 years.
If the audit has not been resolved, a request to extend the statue of limitation for assessment tax. This limits the time allowed to assess additional taxes. It is normally 3 years after a return was filed or due, whichever one is later. There is also a statue of limitations for refunds. Extending the statue gives more time to provide more documentation to support your position. You can request an appeal if you are not happy with the audit results or to claim a credit or tax refund. It will also give the IRS time to complete the audit and to process the audit results.
You do not have to agree to extend the statue date, but if you do not agree, the auditor will be forced to make their determination based on what you have provided.
How long does auditing take?
The time will depend on the audit type, the issue, the information requested, availability for meetings, and the agreement/disagreement of the results.
What are my rights?
Your rights as a taxpayer is in Publication 1, which explains your rights and the audit, appeal, collection, and refund process. Those rights include:
- The right to courteous and professional treatment by the IRS
- The right to confidentiality and privacy about tax matters.
- The right to know why you are being asked for information, how it will be used and what happens if the information is not provided.
- The right to representation by yourself or an authorized representative.
- The right to appeal the results, both before the courts and within the IRS.
How does the IRS conclude audits?
The audit can be concluded in 3 ways:
- Agreed: The audit where proposed changes were made by the IRS and you understood them as well as agreed with the made changes.
- No Change: The audit where you provided all information being reviewed but results have no change.
- Disagreed: The audit where proposed changes were made by the IRS and you understood them but disagreed with the proposed changes.
What happens if you have agreed with audit findings?
If you have agreed with the findings, you will be asked to sign the audit report or similar form. If you happen to owe the IRS money, there are various payment options out there. Publication 594, The Collection Process explains the collection process in full details.
What happens when you disagree with the findings?
You may request a conference with the IRS manager. The IRS also has mediation or you can file for an appeal if there is time within the statue of limitations.
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