It can be distressing to learn that the Internal Revenue Services (IRS) is auditing you or your business. According to tax law, the IRS has three years from the date of your audit notification to complete your audit. How long your IRS audit takes isn’t as simple as that, however. Learn more about how long IRS audits take in normal and special circumstances.
How Long Does a Typical IRS Audit Take?
The three years mentioned above is the statute of limitations of the audit, i.e. after you are notified, the IRS has three years to complete the audit and report its findings. During this time, they must assess and/or charge any additional taxes for the return that is under audit. Even though they have three years, it isn’t uncommon for IRS audits to close within one year. According to the IRS training manual, IRS agents are required to close audits within 26 months of opening them. Therefore, typical audits take 1-2 years from the later of the due date of the return or the date it was filed. There is an exception – if tax fraud is suspected, the statute of limitations is suspended. Should the IRS find large amounts of unreported money, they have three more years to investigate. Still, they are more likely to complete their investigations before that timeline, to adhere to their training guidelines.
Types of Audits
Depending on the circumstances under investigation, the IRS conducts three types of investigations. These are:
- Mail audits – the IRS lets you know that your returns will be audited and ask you to send supporting documents depending on the issues. These are often completed in 3-6 months.
- Office audits – you or your tax professional meets an IRS agent at their office, usually within one year of filing your returns. If there are no extraneous circumstances (e.g. offering incomplete information) these are completed in 3-6 months
- Field audits – the IRS agent meets with you or your tax professional in your home or business premises. These take the longest – often one year – to complete. Field audits are reserved for complex situations, usually with small or medium-sized businesses. They can take multiple years depending on the extent of investigations.
Extension of Audit Timelines
In some cases the statute of limitations of 3 years (or 6 years in the case of suspected tax fraud) can be suspended. Various variables can lead to this, but the following are the most common reasons behind audit delays:
If there are more adjustments to be made on your returns, you can expect the audit period to take longer. Where there are more adjustments, the IRS agent must look over the financial records with greater detail. Sometimes, they may need to open previous returns, and this takes more time.
Small Business Audit
It takes more effort and time to audit a small business compared with auditing individuals. Tracking small business income is more difficult compared to checking out wage income from salaried people. Some small businesses don’t have proper records, so the IRS agents must check websites, client records and bank records to verify that all business income has been reported. If the business has many cash transactions, it can take time to verify the income reported versus the income earned.
The IRS may pursue penalties if there were a lot of adjustments to be made on your return. Pursuing penalties makes the audit process take longer, since they will have to make a case for the proposed penalties. It takes some time for the IRS to decide the penalties they wish to pursue if your returns had significant adjustments. The worst penalty is fraud, and fraud case can last years, especially if the IRS pursues criminal charges. This rarely happens, however.
IRS Audit Help
If you have a problem filing your returns, you should defer to tax professionals to ensure your returns are filed correctly. And if you have received an audit notice, our tax professionals at FinishLine Tax Solutions can help you get through the process fast and easily. Contact us today to get your IRS audit help.