An IRS audit is an examination of the individual’s or organization’s account and financial information to ensure that the information is reported correctly in accordance with the tax laws and verifies the amount of tax paid is correct.
IRS audits, however, are rare to be performed as the resources through which the IRS are performed are reduced to 28% over the last decade.
Not just resources, IRS audit rates also dropped from 0.93 % in 2010 to 0.51% in 2018. If the number of IRS audits are monitored, then they were 991,168 in 2018 and dropped near to half if it is compared to 2010 audits which were 1.735 million in total.
If you are a taxpayer and run a business, receiving an audit letter can be a nightmare in most cases. You may want to know how long an IRS audit takes, or what else they would be asking you to show. But if you are sure that you have paid all your taxes and your finances are properly managed, then you just have to comply with the instructions that IRS auditors provide.
How does an IRS audit work?
Before an IRS audit begins, they always inform you by sending a postal letter(s) via USPS (United States Postal Service). The letter states the requirements that you may need to provide. Mostly you need to send the information that the IRS has requested in the mail. For instance, the IRS may require you to provide the documents that state and confirm the value and the quantity of your stock till the specified dates.
There are three types of Tax audits that the IRS may carry out:
- Mail Audit
- Field Audit
- Office Audit
Almost 73% of all audits are totally performed through the mail. In most cases, IRS audits will wrap up the audit within 1 year. Although the IRS has three years to audit your return, it likes to close audits before the statute of limitations expires.
Types of IRS audit
Audits that are done through the mail and are generally performed quickly and can be completed in a minimum of three and with a maximum of six months. The time that is needed to complete the mail audit depends on the reply mail you submit in response to IRS mail and the information that you have submitted is sufficient to claim the adjustments in your tax returns.
If businesses are involved in complicated tax issues, then only field audits are performed. An audit officer will visit your business address, your home, or your accountant’s office to verify the information and financial records you stated in the tax returns. If you run a business, then the officer may interview your employees and investigate the associated facilities.
In infield audits, it is suggested to hire an attorney as the audit may last up to one year and the complexity of the finances of a business may require potential liability.
Office audits are performed when IRS officers want to authenticate the deductions of taxes. For this, your representative such as your attorney, enrolled agent, your accountant, or you have to meet the IRS representative, likely in the state government office. The details of documents would be enlisted in the IRS letter which you receive to bring at the time of meeting with the IRS agent.
Unlike field or mail audits, office audits are done more quickly like in a day or two. The period only lasts longer if the business representative fails to submit the required document. It may take three to four months to complete in these cases.
How long does an IRS audit take?
IRS audit usually happens during the two years after you file your tax returns. But the IRS is permitted to go back to three years to audit your tax returns depending on the filing date or the due date of your tax returns. If the errors found in the tax returns are in the form of international tax fraud, the IRS will look up to 6 years of your finances and tax returns to confirm how long the fraud has been in practice.
What happens after you get audited?
The IRS audit process starts from the IRS letter that they send through USPS. All you have to do is to respond to the letter within 90-days of receiving the required tax return detailed documents. For instance, the IRS may want to ask your income statement along with your expenses to ensure that you are eligible for the tax deductions that you have claimed in the returns. If you need extra time to compile the documents that you are asked for, you can generally request a month’s extension.
In case of any assistance in an IRS audit, it is suggested to talk to a business lawyer that can help you resolve any legal issue that you may have.
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