The IRS will go back a minimum of three years for an audit. If they notice a major, recurring issue on your tax returns, they may audit up to six years. The IRS can only audit returns for the past six years, so always keep your tax return documentation for a minimum of six years.
The time frame for all audits is different and depends on the complexity of the situation. It can also depend on how long the information being requested takes to produce, as well as the availability of both parties for scheduling meetings. Most of all, it can take time depending on your agreement or disagreement with the items discussed in the audit.
An IRS audit can take up to three months to complete, from beginning to end. This includes the following steps:
An IRS audit can be concluded in 3 different ways:
IRS tax audits can be completed by two different government departments, including the IRS and your State Department of Taxation. Below are some guidelines, rules and procedures to help with the IRS tax audit preparation and what could happen after an audit.
As discussed above, the IRS selects a person for an IRS audit for two basic reasons, however there is a more complex system of selection, which we will discuss below. The IRS has a computer database that performs an analysis on every tax return. There are different computer systems that perform various types of analyses and statistical analyses to score your tax return based on its likelihood of being correct.
Disapprove of Audit Findings: If you disagree with your audit’s findings, you will have 30 days to do the following:
If you agree with the audit’s findings, you will have to sign the examination report (or a similar form depending upon the type of audit).
What happens when you disagree with the audit findings?
Did you receive a notice for an IRS tax audit? Contact Sheppard Law Offices to get the best result possible. Below is a list of the different penalties that you could be facing if you don’t hire a skilled IRS tax attorney.
If the IRS finds you purposely lied about a large amount on your tax return, you could be facing penalties for 20% of the amount that was underpaid on your taxes. In big cases, you could be see a penalty that is double: 40% of your total underpaid taxes.
The following is a list of the different types of accuracy-related penalties that could result in a IRS tax audit.
If you are late filing your taxes or paying the amount owed, there will be a 5% penalty towards the unpaid taxes, charged to you each month (up to a maximum of 25%).
If your taxes are 60+ days late, there will be a minimum penalty of $135. It’s important to remember that filing your taxes on time but paying late holds less of a penalty than not filing your taxes at all.
If you don’t pay your taxes owed after an audit, the IRS will give you a penalty of 0.5% each month of nonpayment. The penalty period starts 21 days after the IRS issues the notice of payment. If an audit results in accuracy-related penalties, fraudulent failure to file a tax return or civil fraud, the IRS adds an annual interest of 3%.
When it comes to civil fraud, fortunately, consequences don’t include jail time. If you’re found to have committed civil fraud, the IRS may issue a large penalty of 75% on any tax that resulted in fraudulent activity.
Deliberate failure to file your tax return can be a civil offense or misdemeanor criminal offense. If criminal charges are filed, you may be sentenced to jail time for one year, plus $25,000 in fines for each year that you fail to file your taxes.
If you find that all the items are in place for the audit, and agree with all findings, you will be asked to sign the examination report.
If you disagree with the findings during the audit, you can request a conference with an IRS manager, or follow best practice and contact a trusted IRS audit attorney to help your case.