How Long Do IRS Audits Take?
After you receive the Internal Revenue Services (IRS) agency notice that you are under audit, the IRS has up to three years to audit you. While the time varies on different cases, most audits are completed within a year.
The three-year threshold comes from the statute of limitations and the time limit the IRS has to charge or asses additional taxes on the return that’s being audited. The statute states that audit explores three years from the due date of the return being investigated or the date you filed it, whichever is later.
So, for a person filing on April 15, 2020, the statute would expire on April 15, 2023. In most cases, the IRS will finish an audit within a year. Even though the IRS has up to three years to audit your return, they like to close audits well before the statute of limitations expires. In fact, it is actually stated in the IRS training manual – the Internal Revenue Manual – that IRS agents must “strictly adhere to” the rule of opening and closing audits within 26 months after the due of the return or the date it was filed, whichever was later.
In the rare case of tax fraud, the IRS doesn’t have a statute of limitations. If there is a large amount of unreported income, the statute is six years to audit. However, the IRS rarely goes into an audit expecting an extended statute. Auditors go in assuming that three years is the limit and will generally work to complete the audit within that timeframe.
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NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
Three Types of Audits
The Internal Revenue Service agency performs three types of audits that generally last from a few months to about a year.
1. Mail Audits
These audits are usually quick and straightforward and are done by mail. The IRS notifies the taxpayer with seven months of filing their return that they will be audited. Depending on the issues involved and how quickly and completely a taxpayer responds to their audit letter, mail audits usually wrap up within three to six months.
2. Office Audits
Your tax professional or you will meet with the IRS agent at an IRS office. These audits are usually started within a year after you file the return and are wrapped up in three to six months. If you don’t provide complete information or if the auditor finds issues and wants to expand into other areas or years, you can expect a delay.
3. Field Audits
With a field audit, IRS agents meet with you or your tax professional at your place of business or home. The IRS will usually start these audits within a year after a return was filed and often complete them in about a year.
The IRS usually only does field audits if it is a complex situation, usually having to do with a
small business. Field audits take the longest because of the time it takes the IRS to do an extensive review of your financial records, and they often involve multiple years too
Why Your Audit Time Might Be Extended?
There are all types of tax returns and all types of reasons to audit. So, the timing of an audit might be different depending on varying factors and complexities.
Here are four factors that can extend the time it the IRS to complete an audit.
If the IRS auditor finds a lot of things to change on your return, they will have to make a lot more adjustments. With more adjustments, the auditor will need to take more time to look over financial records more extensively. This higher level of scrutiny will often mean that auditors will be forced to open up other tax years for investigations, so you will spend more time under audit.
2) Small Businesses
Auditors have more work to do when auditing a small business. It is harder for the IRS to track small business income as it doesn’t get reported on as many information statements as people who earn wager receive.
With small business audits, IRS auditors take more time to look over records such as bank accounts, websites and client account records to determine whether a business reported all of its income. All that can add up in how long it will take the IRS to complete the audit. For businesses that deal in a lot of cash, it can take even longer if the IRS thinks that the business did report all of its income.
If auditors had to make a lot of adjustments on your return, the IRS often will want to pursue penalties which can also add time to the audit. The IRS will try to build a case for proposing penalties and will ask the taxpayer if they have done everything they could do to comply with tax laws.
Auditors will go “silent” while the IRS is making decisions about pursuing the most severe penalty – fraud. In the case of fraud, audits can last for years if the IRS decides to pursue criminal prosecution. However, taxpayers will be relieved to know that this is rare. Out of the 155 million taxpayers, only about 2,000 cases each year are criminally pursued by the IRS.
If the taxpayer disagrees with the auditor’s adjustments to their return, they can take their case to IRS appeals and even to course, which would extend the audit. You can often add six months to a year to your audit when you go to IRS appeals.