How Long Does It Take? IRS Audit
You just received an IRS notice informing you that you’re now under audit.
How long will this process take? Weeks, months, years?
It depends – but most audits wrap up well within a year
Good news: There’s a time limit (called the statute of limitations). This time limit is how long the IRS has to charge you (or, “assess”) additional taxes on the return that’s being audited. The statute expires three years from the due date of the return or the date you filed it, whichever is later.
So, for a person filing on April 15, 2015, the statute would expire on April 15, 2018.
In most cases, the IRS will wrap up the audit within a year. Even though the IRS has three years to audit your return, the IRS likes to close audits long before the statute of limitations expires. In fact, the IRS training guide (called the Internal Revenue Manual) states that IRS agents must “strictly adhere to” the guideline to open and close audits within 26 months after the due date of the return or the date it was filed, whichever is later.
In rare cases where tax fraud is involved, the IRS doesn’t have a statute of limitations. If there’s a large amount of unreported income, the statute is six years, but the IRS rarely goes into an audit assuming an extended statute. The IRS assumes that three years is the limit, and the auditor will generally work to complete the audit within that timeline.
The type of audit is also important
There are three types of IRS audits, lasting from a few months to about a year.
Mail audits are usually quick and straightforward
The IRS does these audits by mail, generally notifying taxpayers within seven months of filing. Mail audits usually wrap up within three to six months, depending on the issues involved and how quickly and completely you respond to the audit letter.
Office audits usually move quickly
You (or your tax pro) will meet with the IRS agent at an IRS office. The IRS usually starts these audits within a year after you file the return, and wraps them up within three to six months. But expect a delay if you don’t provide complete information or if the auditor finds issues and wants to expand the audit into other areas or years.
Field audits can last up to a year, or more if there are issues
In field audits, the IRS meets with you (or your tax pro) at your business or home. The IRS usually starts these audits within a year after you file the return, and they often last about a year.
The IRS saves field audits for complex situations, often involving small businesses. Field audits take the longest because the IRS will do an extensive review of your finances and records. Field audits often involve multiple tax years, too.
Four other factors can extend the time to complete an audit
1. The IRS finds a lot of things to change on your return (called “adjustments”)
If the IRS auditor is making a lot of adjustments to your return, he or she will often dig in and look for more. This higher scrutiny often means that the auditor will open other tax years, so you’ll spend more time under audit.
2. You own a small business
When it comes to small businesses, the auditor will have more work to do in the audit. That’s because it’s harder for the IRS to track small business income, which doesn’t get reported on as many information statements as wage earners receive (like Forms W-2 and 1099).
In small business audits, IRS auditors spend more time looking at records, such as bank accounts, websites, and client accounting records to determine whether the business reported all of its income. This adds time to the audit – and for businesses that deal in a lot of cash, it can add months if the IRS thinks the business didn’t report all of its income.
3. The IRS pursues penalties
If the IRS makes a lot of adjustments to your return, the IRS will often want to pursue penalties, which can also add time to the audit. The IRS will ask questions about how you tried to comply and build a case for proposing penalties.
If the IRS ends up pursuing the most severe penalty – fraud – the auditor will likely go “silent” while the IRS makes the decision. In these cases, the audit can last for years if the IRS pursues criminal prosecution. Luckily for taxpayers, that’s rare. The IRS pursues criminal fraud in only about 2,000 cases (out of 155 million taxpayers) each year.
4. You disagree with the auditor’s adjustments
If you disagree with the auditor, you can take your case to IRS appeals – and even to court – which would extend the audit. When you go to IRS appeals, you often add at least six months – and likely up to a year – depending on the issues you’re contesting.
What to do
The best advice to wrap up an audit as soon as possible depends on the type of audit.
- For mail audits, respond promptly and thoroughly. If you don’t have all your documents, provide your best evidence and explanations to support your position.
- Leave office and field audits to the professionals. Hire an experienced tax pro to deal with the IRS for you. Your tax pro will properly prepare for the audit, anticipate IRS questions, advocate for you with the IRS, and wrap up the audit faster.
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