The thought of being audited by the IRS is very scary for most American taxpayers. The process is invasive and complicated, and is often the case with government interaction, there will most likely be delays especially with the effects Covid has had on the IRS. You may not know what is happening and might be wondering how long it might take and how many tax years you will have to defend.
While tax audits are not resolved in a day, there are federal guidelines that attempt to limit how long they can go on for. Most audits are concluded within 6 to 8 months but can take multiple years under certain circumstances. The exact length of an audit will largely depend on the type of audit that is being conducted, the complexity of the audit, number of years under audit and number of years that are non-filed and any badges of fraud that arise in the mind of the auditor. Some necessary and beneficial post audit procedures including fast track mediation, litigation and appeals, can also extend the audit timeline. However, there are steps that you can take to shorten the time frame your audit takes and mitigate the facts and circumstances that are most likely causing you to lose sleep at night.
For the best industry advice on how to handle your civil or potentially criminal audit, appeal, litigation, or collection action, speak to the award-winning Tax Attorneys and CPAs at The Tax Law Offices of David W. Klasing. We have been taking on the IRS on behalf of clients just like you for decades, and we know what it takes to make sure you are protected against cumbersome, and invasive IRS audits. More importantly, we have extensive experience and a long & successful track record dealing with audits that can potentially morph into IRS Criminal Investigations including Eggshell and high stakesReverse Eggshell audits.
To schedule a reduced rate initial consultation to discuss the time frame and number of years that could come become involved in your audit call us at (800) 681-1295 or schedule online here.
The ordinary statute of limitations for IRS audits is three years. This means that from the time of the filing of your income tax return that is being examined, the IRS has three years before the audit statute runs, or the “Assessment Statute Expiration Date” (ASED), by which the government must conclude its audit. For instance, if you filed your tax returns on April 15, 2019, the audit on that tax return must conclude by April 15, 2022. Audits may not be instigated for income tax returns that are already two years old except where fraud is found in an open tax year, which opens that audit statute of limitations back to the dawn of time or where a greater than 25% understatement has occurred which opens up a six year statute of limitations for the audit.
Rarely does the audit process extend to three full tax years. This is because IRS auditors are mandated by their own guiding policy to conclude all audits within 27 months. The policy exists to provide the government with ample time to make assessments on the appropriate additional tax liability to impose on the taxpayer. If your auditor has opened more than two tax years to audit you should probably seek representation as this is indicative of an underlying potentially criminal tax issue in the mind of the auditor that may not have been communicated to you or your representative.
By the way, the original preparer is going to be government witness number one against you if you wind up being criminally charged because of badges of fraud uncovered in your audit. Therefore, you are best represented by a tax attorney if there are underlying willful noncompliance issues in your audit.
Different Types of Tax Audits and Time Expectations
The length of time that your audit will take is often dictated by the type of audit that is commenced against you. There are three general forms that an audit may come in, and they all come with their own requirements and time estimates.
These are often single or limited issue audits and therefore they are theoretically a more easily resolvable form of audit and are often completed over the course of six or seven months if you hire a representative familiar with the process. The length of time that the audit will last depends primarily on the timeliness, effectiveness, and completeness of your written responses to the IRS inquiries.
Unfortunately, when your mail your responses into the IRS they go into a service center that consists of agents ranging from competent to completely inept. It is not uncommon when you have a complicated issue arise in a correspondence audit you (or your representative) can wind up writing multiple letters to the IRS and not be able to resolve the issue to your satisfaction. Each correspondence is stand alone and the IRS cannot be counted on to read and comprehend all prior correspondence. Keep in mind this is an organization that has case law holding that they cannot be held liable for their own negligence.
Ultimately the first time your representative will have the opportunity to speak face to face with a competent, responsible, and live IRS representative will be at the appeal that will be granted after the IRS finally tires of corresponding with you or your representative and issues a 90-day letter (statutory notice of deficiency) and a proper tax court petition is filed. I do not recommend that a taxpayer attempt to file the tax court petition or represent themselves at appeals.
Whereas mail audits are conducted without in-person contact, office audits often require the taxpayer to meet with IRS representatives at the local IRS government office where the taxpayer will have to submit to an in-person interview as to the non-compliance the auditor detects. These audits will often commence later than mail audits, but usually conclude in half the time. Again, the length of the audit will depend on the quality of the responses that you provide.
If you cannot face the auditor without uncontrollable muscle twitches and detectible sweat running down the side of your face because of the willful noncompliance you are afraid the auditor will detect, we recommend you hire counsel to appear on your behalf. Keep in mind that 70% of communication is nonverbal and that the very act of lying to a federal agent is a felony in and of itself.
The IRS uses field audits for the most complicated of audit scenarios. They are most common where the subject of an audit is the owner of a business. Field audits can take up to a year or longer, and usually will evaluate filings over multiple years.
In a field audit the auditor will often want to tour the business location and possibly the personal residence of the taxpayer. They can also involve a mandatory interview. These factors make this type of audit much more invasive than the other types of audits. We recommend that you hire competent and experienced counsel to protect your net worth and your liberty if you are facing this type of audit.
We are often very successful in keeping the auditor out of your personal residence and in shielding you from having to speak to the IRS agent directly. If the auditor insists on touring your business, we can often make arrangements to do this at a time that minimizes the auditors’ interactions with your customers or employees.
Complications may arise that extend the expected length of a tax audit. These complications may be due to the suspect tax compliance practices of the taxpayer, diligence, and competence of the auditor, or just the nature of the audit and what it is expected to, or actually uncovers.
Where a business is involved, an audit will ordinarily take longer. This is simply because audits that examine businesses often involve extensive records that may or may not have been competently compiled into a set of books which may or may not support the position taken on the businesses tax return which may or may not accurately flow onto the personal tax return of the owner(s). An auditor often must evaluate accounting and underlying substantiation surrounding a business’ income, the propriety of employee and contractor compensation, tie bank accounts back to the books, examine credit lines, and various others accounting issues. For businesses that operate primarily in cash, this can be a difficult undertaking.
The more discrepancies that an audit uncovers, the deeper that an auditor will ordinarily dig into your tax compliance history. To put it simply, the IRS adheres to the adage, “where there is smoke, there’s fire.” The more adjustments that the auditor must make to your tax filings, the more detailed they will ordinarily become in the audit.
If the audit uncovers badges of fraud where the IRS may look to impose civil or criminal tax penalties, the scope of the audit increases. This is because the auditor is required to determine your intentions regarding your improper filings or attempted avoidance of paying your full tax liability. Willfulness in avoiding taxes is a critical element in determining the severity of the civil or criminal penalties that he or she is required to assess, and demonstrating willfulness or lack thereof requires even more detail analysis than a garden variety civil audit is planned to identify.
We suggest taking a couple of measures if you are concerned about how long your tax audit may take or the number of tax years that may become involved. If you are facing a correspondence / mail audit, it is important to respond immediately and thoroughly. Do your best to provide answers to all the inconsistencies that have prompted the audit and write at the level of a 6th grader. The faster the government receives the information, the faster they can render a finding on your case. If the audit goes to a 90-day letter and sufficient tax penalties and interest are at stake, hire a professional.
For office and field audits, enlist the help of a tax professional. Our Tax Attorneys and CPAs can anticipate the requirements of your audit and help accelerate the process with proper preparation and advocacy.
Complying with a tax audit can be a lengthy, tedious process. Let our tax professionals handle it for you. The Tax Attorneys and CPAs at The Tax Law Offices of David W. Klasing have the experience to resolve your case quickly and painlessly. Schedule a reduced rate initial consultation by calling us today at (800) 681-1295 or schedule a reduce rate consultation online.
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
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