IRS Audits & Statutes of Limitations

An audit by the IRS strikes fear in just about everybody. In reality, the IRS doesn’t audit a large percentage of returns. The pick those to audit based on a score from computer analysis of the tax return in question. Although the criteria may change each year, certain areas are more likely to be looked at than others. For example, if you have a high income, you have a better chance of being audited. Also, if you are self-employed, deduct part of your home as a business expense, or receive income in cash, your audit score may be high. And if you’ve been audited before and there was a problem, your future returns may be audited as well.

If you report all of your income and take only the deductions you’re entitled to, you shouldn’t have any problems, even if your return is audited. As long as you can substantiate every item you claim, your IRS audit should go smoothly.

What happens during an audit?

Many times, an audit is simply handled through the mail. They may also take place at your home, an IRS office or a third party’s office (accountant or lawyer). The IRS examiner will let you know exactly what records you will need to have available.

You can handle the matter yourself, or call in a professional to help you. If your return was prepared at a Liberty office, we will accompany you to your audit and explain how your return was prepared.

Once the IRS audit is completed, you can either agree with the IRS findings and pay the tax plus any interest or penalties, or you can appeal the decision. You may even be due a refund, or the IRS may just accept your return as you filed it.

Statute of Limitations

The IRS must bring action within a certain number of years unless fraud is suspected. The statute of limitations for conducting an audit is three years from filing. There is a ten year statute of limitations for collection of taxes.

If you are due a refund, you have three years from the time you filed to claim it. If you didn’t file a return, but are due a refund, you need to file a claim within two years from when the tax was paid.

See IRS Publication 1546, How to Get Tax Help for more information about your rights.