When you hear the words “IRS audit,” we know how anxious you feel. People who received IRS letter or notice just understand how nerve-wracking the experience is.
But, to be honest, the process is often more methodical than many think. While people wonder how long does it take for an IRS audit, the truth is that each audit follows a timeline relying on many external factors, from how complicated your tax return is to the nature of the IRS’s concerns.
If you’re reading this, there can be one of these two reasons:
- You may be facing an IRS audit or have concerns about a potential one soon.
- You probably have questions about how far back the IRS can dig into your financial records or how long the process will take.
Well, the more you know about the audit process, the better prepared you’ll be if you ever find yourself facing one. Let’s break down the journey of an IRS audit and uncover the steps it takes, so you can approach it with confidence rather than fear.
What is an IRS Audit?
| An IRS audit is simply a review of an individual’s or organization’s financial records to scrutinize whether all tax laws are followed and there is no risk of tax evasion. |
Audits can happen for many reasons, but a key factor is your income level. The IRS looks more at high-net-worth individuals and businesses because their tax filings are generally complicated. In simple words, it just increases the chances of mistakes on their part.
In 2019, around 0.2% of people earning between $200,000 and $500,000 were audited. This goes up to 0.6% for those making between $500,000 and $1 million. The highest audit rate was for those earning $10 million or more, with about 8.7% of this group audited.
Let’s read the triggers in detail.
What Triggers an IRS Audit?
The IRS often selects tax returns for audit based on certain mistakes or missing information that says you might owe more tax. Here are some common audit triggers:
- Unreported Income: This includes money from side jobs, freelance work, tips, cryptocurrency, foreign income, investments, gambling winnings, and other earnings you haven’t reported.
- Business Vehicle Deductions: Claiming 100% of your vehicle’s use for business, especially if it’s your only vehicle, can raise a red flag.
- Meals Deductions: Claiming business meal expenses without proper documentation could draw attention.
- Unauthorized Deductions or Credits: This includes claiming too many deductions for business expenses, losses, or charitable donations.
- Hobby Expenses and Losses: If you claim hobby-related expenses as business deductions and don’t turn a profit in three out of five years, the IRS might investigate.
- Charitable Donations: Large donations that seem too high compared to your income can trigger an audit.
- Home Office Deduction: Claiming a home office deduction is usually very risky with strict IRS requirements. In other words, they’ll need that space to be used exclusively for business purposes.
- Earned Income Tax Credit (EITC): Claiming this credit increases the chance of an audit since it’s often claimed incorrectly.
- Rounded Numbers or Math Errors: Using too many rounded numbers or making mistakes in your math can attract IRS attention.
How Long Does It Take for an IRS Audit?
The time IRS takes for an audit can vary, but most are completed within a year. The IRS aims to finish audits as soon as possible, but sometimes the process can be influenced by the complexity of the case or the type of audit being conducted.
It is important to note that in most cases, the IRS follows a guideline that requires agents to complete audits within 26 months of the tax return’s due date or the date it was filed, whichever is later.
However, keep in mind that the IRS has up to three years to review and charge additional taxes for a return (known as the statute of limitations). In general, they typically aim to resolve audits well before this time limit.
In rare situations involving tax fraud or a significant amount of unreported income, the IRS can extend the audit time to six years. In cases of fraud, there is no time limit, but the IRS generally tries to stick to the three years for completing most audits.
The timeline of a tax audit also depends on the type of audit being conducted by the IRS. There are three primary types, each with different timeframes:
- Correspondence Audits:: These audits are done through the mail and usually wrap up within three to six months. Typically, they start within seven months of filing your return. To speed things up, make sure to respond to IRS letters with complete and accurate information. If needed, you can also request a 30-day extension.
- Office Audits: These happen when you or your tax representative meet with an auditor at an IRS office to provide documents. Most of the time, these audits begin within a year of filing your return and take about three to six months to finish. However, delays can happen if more information is needed or if the auditor decides to review more of your tax returns.
- Field Audits: These are the most detailed audits, often involving visits to your business or home. Usually, field audits start within a year of filing your return but can last up to a year or longer, especially if several years are being audited. Small businesses are more likely to face field audits since they often deal with complex records and cash transactions.
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IRS Audit: How Far Back Can They Go to Review My Return?
Generally, the IRS can audit tax returns from the last three years. However, if they find a big mistake, they may look back further, up to six years. Most audits happen within two years of when you file your return.
If an audit isn’t resolved, the IRS may ask to extend the time limit, known as the “statute of limitations,” for reviewing your taxes. Normally, this period lasts three years after the return is due or filed, whichever comes later. Once this time expires, the IRS can no longer assess or collect more taxes, and you can’t claim a refund.
Extending this time can benefit both you and the IRS. It gives you more time to provide documents, file an appeal, or claim a refund and gives the IRS more time to finish the audit. You don’t have to agree to the extension, but if you don’t, the auditor will decide based on the available information.
Simple Tips to Speed Up Your Tax Audit
As we have read, how long does it take for an IRS audit can vary based on several factors. To help resolve it more quickly, here are a few simple tips you can follow:
- Keep Your Records Updated: Having your financial records up to date ensures your tax returns are accurate, which lowers your chances of an audit. In fact, having all your documents ready makes it easier to respond quickly if you are audited.
- File Any Unfiled Tax Returns: If you’ve missed filing any tax returns, file them or take the relief options like Offer in Compromise with IRS. Even if you owe taxes, penalties, or interest, filing now can prevent bigger problems later. It can also help you avoid legal trouble for unfiled taxes.
- Respond Quickly and Accurately: When the IRS requests documents, respond fast and provide exactly what they ask for—nothing extra. Even late or incomplete responses can slow down the process and lead to additional information requests.
- Check the Status of Your Audit: If you haven’t heard from your auditor in a while, it’s a good idea to check on your audit’s progress. In this case, contact the auditor directly, their supervisor, or the IRS customer service to stay updated.
If you need to check on the status, contact your auditor first. If you can’t reach them, get in touch with their supervisor or call IRS customer service at (800) 829-1040 between 7 AM and 7 PM (local time).
If the IRS audit how far back they can go becomes a concern or the audit goes beyond a simple question, consulting Hopkins CPA Firm is a smart move. They can guide you through the process, represent you in front of the IRS, and help you get the best outcome possible.
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Final Thoughts!
By now you have understood that knowing the timeline and triggers of an IRS audit is important, but being prepared is equally important. Keeping your documents up to date and responding quickly helps, but there are other steps you can take.
Start with a DIY process to review your financials before tax season to catch any potential issues that could trigger an audit. Make sure you file accurate returns and keep documentation for complex deductions, like detailed logs or receipts.
Finally, stay in touch with a trusted tax professional throughout the year, not just during tax season. This can help you stay compliant and lower the chances of an audit. These steps won’t just make an audit easier but also help you feel more secure about your tax filings going forward.
