What to Expect During an IRS Tax Audit and How to Prepare

Receiving a letter from the IRS is never pleasant, especially when notified you’re being selected for an audit.

No need to panic, though. The IRS will simply examine your financial information to ensure you reported the correct amount of tax and that everything in accordance with tax law.

Still, you should familiarize yourself with information regarding this probe, possible outcomes, and most importantly, the statute of limitations IRS audit. This can put your mind at ease and help you make the right decision if the end result isn’t in your favor.

Why Is The Irs Auditing You?

If the IRS audit seems like a completely random choice (particularly if you’re diligent about your returns), chances are it is. In fact, returns are sometimes selected through a statistical formula. 

What does this mean?

The IRS may compare your tax return with the so-called norms established from different audits of a statistically valid sample of returns. In other words, it’s a numbers game and you won the worst prize.

The second reason why you are chosen is the possibility your returns involve transactions with other taxpayers whose returns are being audited. So if a business partner is currently under IRS investigation, they may also take a look at your returns simply because there are transactions between you and them.

After your return is chosen, an auditor will review it. They will either accept it or in the worst-case scenario, find something deemed questionable and forward the return to an examination group.

Irs Audit Process Explained

The fine folks from the IRS will conduct the audit through an in-person interview or via mail. This interview can take place almost anywhere, from the IRS office to your home and business’ location, even the accountant’s office. 

The first contact will be initiated by the IRS through a physical letter sent to you via mail. This letter will contain all the information and instructions you will need. When audits are conducted by mail, you will receive requests for additional information about items from the tax return. If the amount of records exceeds the mailing limit, you can request an in-person audit. 

The records that may be requested include (but are not limited to):

• Bills
• Receipts
• Legal papers
• Loan agreements
• Canceled checks
• Tickets

According to the law, you need to keep all the records used in tax return preparation for three years from the filing date. 

How Long Will The Irs Audit Take?

There’s no easy way to answer this as the length of the audit will vary upon many factors, such as:

• Complexity of the issue
• Type of the audit
• Availability of requested information
• Availability of the parties for meetings
• Agreements and disagreements with the findings

On average, the audit will be complete within three to six months. You can expect it to take a lot longer if the auditor finds an issue and wants to expand the audit to older tax returns.

That brings us to the following question:

What is the statute of limitations IRS audit? 

Statute Of Limitations Irs Audit

Typically, the statute of limitations IRS audit is three years, meaning the IRS can include returns you filed in the last three years in an audit. The auditors will usually try to audit returns as fast as possible and, in most cases, will look at returns filed within two years.

In cases where an audit is not resolved within the regular statute of limitations IRS audit, they may request an extension of the regular timeframe. This may give you additional time to provide documentation that supports your position, request an appeal, or claim a tax credit. Extending the statute of limitations IRS audit also allows IRS employees to process the audit more thoroughly. 

It's possible for you to decline the request by the IRS to extend the statute of limitation IRS audit. However,  the auditor will be forced to make a decision using only the information and documentation available at that moment.

It’s worth noting that the three-year limitation has exceptions.

For example, if the taxpayer fails to mention income amounting to more than 25% of the income they reported in their return, the IRS will have six years from the filing date to audit the return and assess additional taxes.

The six years statute of limitation IRS audit is also applied to auditing returns and assessing additional tax on income connected to an undisclosed foreign income or bank account reporting if more than $5k of income was omitted from the return.

Lastly, the statute of limitations IRS audit for assessing additional taxes is open indefinitely if the tax return is false or fraudulent.

Possible Outcomes Of The Audit

There are three ways in which IRS audits are concluded:

1. No change: this means you have successfully substantiated all the questionable items in the return and don’t need to make any changes
2. Agreed: the IRS proposed changes to some items and you agree with these changes
3. Disagreed: you understand but disagree with the proposed changes in your return

The only outcome which can be considered passing is a ’no change’ outcome. Failing an audit means you will receive a bigger tax bill and the IRS will utilize the outcome to recover the funds you didn’t pay. 

You will also have to pay additional taxes including interest. 

Do You Need A Tax Attorney?

Although they are experts in tax law, a tax attorney can’t negotiate with the IRS on your behalf to stop the audit. However, they can help you navigate the entire process to minimize the chances of the agency expanding your tax audit into additional years. 

Since there is a strict statute of limitations in place, IRS agents need to have clear reasons to reach beyond the limits. Thus, an experienced tax lawyer can assist the revenue officer in completing the audit as fast as possible and securing you an outcome that’s in your best interest. 

Get In Touch With The Law Offices Of Mary E. King If You Need Assistance With Your Irs Audit

While you won’t end up in jail as a result of your IRS audit, a negative outcome can still put a considerable strain on your finances. 

This is why you should contact the Law Offices of Mary E. King. For years, we’ve been helping businesses and individuals alike to successfully navigate the process of IRS audits. Our legal advice and expertise can help you avoid making costly mistakes and ultimately, minimize the financial impact of the audit.

Call 941-906-7585 or fill out our online contact form to schedule a free consultation. 

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.