You just received a notice from the IRS informing you that you are now under audit.
How long will this process take? weeks, months, years?
depends, but most audits are done well within a year
good news: there is a time limit (called a statute of limitations). This time limit is how long the IRS has to collect (or “assess”) additional taxes on the return being audited. the statute expires three years from the due date of the return or the date you filed it, whichever is later.
so, for a person who filed on April 15, 2015, the statute would expire on April 15, 2018.
In most cases, the IRS will complete the audit within a year. Even though the IRS has three years to audit your return, the IRS likes to close the audits well before the statute of limitations expires. In fact, the IRS training guide (called the Internal Revenue Manual) states that IRS agents must “strictly adhere” to the guideline to open and close audits within 26 months of the due date of the return or the date it was filed, whichever is later.
In rare cases involving tax fraud, the IRS does not have a statute of limitations. If there is a large amount of unreported income, the statute is six years, but the IRS rarely goes through an audit assuming an extended statute. The IRS assumes that three years is the limit, and the auditor will generally work to complete the audit within that timeframe.
the type of audit is also important
There are three types of irs audits, lasting anywhere from a few months to about a year.
mail audits are usually quick and easy
The IRS does these audits by mail, generally notifying taxpayers within seven months of filing. mail-in audits are usually finished within three to six months, depending on the issues involved and how quickly and completely you respond to the audit letter.
office audits often move quickly
You (or your tax professional) will meet with the IRS agent at an IRS office. The IRS generally begins these audits within a year after you file and completes them within three to six months. but expect a delay if you don’t provide complete information or if the auditor finds problems and wants to expand the audit to other areas or years.
field audits can last up to a year, or longer if there are problems
In field audits, the IRS meets with you (or your tax professional) at your business or home. The IRS generally begins these audits within a year after you file, and they often last about a year.
The IRS reserves field audits for complex situations, often involving small businesses. Field audits take longer because the IRS will do a thorough review of your finances and records. field audits often involve multiple fiscal years as well.
four other factors can extend the time to complete an audit
1. the irs finds many things to change on your return (called “adjustments”)
If the IRS auditor is making too many adjustments to your return, they will often dig deeper and look for more. this increased scrutiny often means the auditor will open up other fiscal years, thus spending more time under audit.
2. you own a small business
When it comes to small businesses, the auditor will have more work to do on the audit. That’s because it’s harder for the IRS to track small business income, which isn’t reported on as many information returns as wage earners receive (such as W-2s and 1099s).
In small business audits, IRS auditors spend more time examining records, such as bank accounts, websites, and client accounting records, to determine if the business reported all of its income. This adds time to the audit, and for businesses that handle a lot of cash, it can add months if the IRS believes the business underreported its income.
3. the irs pursues penalties
If the irs makes a lot of adjustments to your return, they will often want to penalize you, which can also add time to the audit. The IRS will ask you questions about how you tried to comply and will build a case for proposing penalties.
if the irs ends up pursuing the most severe penalty (fraud), the auditor will likely go “silent” while the irs makes the decision. In these cases, the audit can take years if the IRS pursues criminal prosecution. luckily for taxpayers, that’s rare. The IRS goes after criminal fraud in only about 2,000 cases (out of 155 million taxpayers) each year.
4. disagrees with auditor settings
If you disagree with the auditor, you can take your case on appeal, and even to court, which would extend the audit. when you go to your appeals, you often add at least six months, and probably up to a year, depending on the issues you’re contesting.
what to do
The best advice for completing an audit as soon as possible depends on the type of audit.
- For audits by mail, respond quickly and thoroughly. If you do not have all your documents, please provide your best evidence and explanations to support your position.
- leave the office and field audits to the professionals. hire an experienced tax professional to handle the irs for you. Your tax professional will properly prepare for the audit, anticipate your questions, advocate for you with the tax service, and complete the audit faster.
learn how to handle an irs audit.
You can also outsource any type of audit to an experienced tax professional. learn more about h&r block & notify services or get help from a trusted irs expert.