Each year, the IRS audits many taxpayers. These individuals always receive a written notice from the IRS explaining their selection for the audit. Does the IRS send out audit letters at a specific time of year? Is there anything you can do to prepare for an upcoming audit? How long does the IRS have to audit you?
Types of IRS Audits
First, it's a good idea for you to know what to expect if selected for an IRS audit. The agency will either ask you to submit to a mail audit or an in-person audit. A mail audit is relatively simple, since you'll only be asked to submit documentation to support the claims on your return.
An in-person audit, though, can be more difficult. Not only will you have to bring your documentation to the office for the IRS agent to examine, you'll also have to answer verbal questions about your method of filing, claims, and recordkeeping. Once the audit is over, the IRS will issue the audit findings, which typically results in either an additional tax charge or a refund.
How Long Does the IRS Have to Audit Taxpayers?
In general, the IRS has a maximum of three years from the filing date of the return to request an audit. For many taxpayers, this date is April 15. As an example, if you filed a 2007 tax return on April 15, 2008, the agency would have until April 15, 2011, to audit that particular return.
Even though the IRS has about three years to conduct an audit, the agency estimates that the majority of its audits occur within two years after the filing date. Since the time limit ends around tax time, the agency may issue many of its audit letters in the fall and winter of the year before the three-year window expires. However, the IRS sends out audit letters at any time of year.
Exceptions to the Three-Year Audit Rule
While most taxpayers are subject to a three-year limit on audits, some taxpayers may still receive notification of an audit, even after the initial three years have passed. The IRS has up to six years to conduct an audit if a taxpayer or a company grossly underreports taxable income on a return. To meet this standard, a taxpayer generally has to underreport his or her income by at least 25 percent.
However, if a taxpayer is suspected of committing serious tax fraud, the IRS does not have to abide by the three-year limit at all. In this situation, the agency can conduct an audit at any time, no matter how long ago the fraud occurred.
It may seem like the IRS issues many of its audit letters at the same time, but they are actually issued year-round. You can protect yourself from an IRS audit by keeping good records and double-checking your deductions before you file your return.