What rules extend the window for an IRS audit? How long does the IRS usually have to complete an audit of your taxes?
Everyone may have a little fear in the back of their head while filing their taxes. “What if I get audited?” they may think. The IRS uses algorithms to establish areas of activity to target each year and produces a bell curve for that specific data point. If your return falls outside of the bell curve median, your risk of an audit greatly increases.
Though the actual risk that any given individual will face an audit in the months or years to come is fairly low, there is still a chance — and the window for the Internal Revenue Service to audit you will increase if you make certain mistakes or take certain steps.
Let’s start with the basic rule: there is a three-year window for the IRS to audit someone when they file their taxes. The clock starts on the due date of their tax filing. In other words, filing your taxes early doesn’t start the clock earlier. Sending your filing in during the month of February doesn’t mean the clock starts in February. It would start on April 15 if that was your due date.
Now, how can this three-year window be extended? If you underestimate your income by at least 25 percent, then the IRS can double the audit window for your tax filings. The same doubling effect applies if you fail to report $5,000 of foreign income, such as in accounts that are overseas.
Once of the harshest examples of when the rules extend the window for an IRS audit is if an individual fails to file. This gives the IRS an unlimited time window to audit you. However, a tiny but egregious error can also trigger an unlimited audit window: failing to sign your filing. No signature means an invalid tax filing, and the IRS can then audit you at any point.
If you have an S-Corporation, income from a C-Corporation, offshore investments or financial accounts or other complex tax issues we invite you to contact Allen Barron to discuss this year’s return and the strategies you can employ to reduce tax exposure as well as your risk of an IRS audit. We invite you to contact Allen Barron or call 866-631-3470 to learn more and schedule an appointment for a free consultation.