What to Do When the IRS Seeks for More Audit Time
For many taxpayers, tax season and beating the tax deadline can be a hectic hassle.
The collection of various receipts, tax forms, and compiling of all the tax data can be quite a taxing process, no pun intended.
It is always a relief once you successfully file your tax returns and put it all behind you.
However, if you think that just filing your tax returns is a hassle, then you don't want to know the headache you will face if you fall in the hands of IRS auditors.
Statute of Limitation for IRS Audits The IRS has a right to audit any taxpayer within a statutory limitation period of three years.
In case the IRS has evidence to show that the taxpayer understated their incomes by over 25%, they can audit tax returns up to 6 years.
If on the other hand, a taxpayer did not file a return or they were involved in outright fraud, the IRS has a right to audit as far back as they wish.
The statute of limitation protects the taxpayers from indefinite auditing and therefore, any taxpayer who filed taxes to the best of their knowledge can be free from tax worries after the third year.
The IRS Can Request for an Extension However, in spite of this statute of limitations, the IRS can contact a taxpayer and seek an extension of the limitation period.
The IRS has to contact you within the statutory time limit to seek an extension.
For example, the IRS can contact you on the second year and request you to allocate more time beyond the 3 year limit to enable them conduct an audit on your taxes.
The IRS requests for an extension when they suspect that you paid less taxes in a given year and they feel that they will run out of time to conduct an audit within the 3-year limitation period.
Taxpayers Right to Refuse or Limit Extension The taxpayer has a right to refuse an extension.
He or she also has a right to limit any permitted extension to some specific aspects of a tax return or to a limited time period.
You can, for example, limit the extension to one year or limit the extension to Schedule D of the 1040 Tax Return Form.
When the IRS contacts you seeking an extension, they will always make you aware of these rights before requesting the extension.
What to do In Case the IRS Contacts you for an Extension In as much as it is your right to refuse an IRS audit extension, it is always best to agree to the extension.
By the time the IRS contacts you for an extension, they will usually have preliminary evidence that indicate that you owe back taxes.
They are therefore, seeking the audit to prove these preliminary evidences.
Therefore, if you turn down the request for an extension, the IRS will most likely send you a notice assessing extra taxes.
However, if you agree to an extension, you will have time to prepare for the audit and you can fight your case against any back taxes.
How to Prepare for the Audit Once you agree to an extension, you will need to take the time to prepare for the audit.
To ensure that you are prepared for any IRS audit, it is always advisable to keep proper tax records.
Therefore, depending on the year that the IRS is seeking an audit, you can gather the required support documentation.
If your records are not in good shape, the extension is an ideal time to gather and request for any records from any third parties that may have the copies of documents that you need.
You may also consider consulting with a tax professional to help you prepare for the audit.
The collection of various receipts, tax forms, and compiling of all the tax data can be quite a taxing process, no pun intended.
It is always a relief once you successfully file your tax returns and put it all behind you.
However, if you think that just filing your tax returns is a hassle, then you don't want to know the headache you will face if you fall in the hands of IRS auditors.
Statute of Limitation for IRS Audits The IRS has a right to audit any taxpayer within a statutory limitation period of three years.
In case the IRS has evidence to show that the taxpayer understated their incomes by over 25%, they can audit tax returns up to 6 years.
If on the other hand, a taxpayer did not file a return or they were involved in outright fraud, the IRS has a right to audit as far back as they wish.
The statute of limitation protects the taxpayers from indefinite auditing and therefore, any taxpayer who filed taxes to the best of their knowledge can be free from tax worries after the third year.
The IRS Can Request for an Extension However, in spite of this statute of limitations, the IRS can contact a taxpayer and seek an extension of the limitation period.
The IRS has to contact you within the statutory time limit to seek an extension.
For example, the IRS can contact you on the second year and request you to allocate more time beyond the 3 year limit to enable them conduct an audit on your taxes.
The IRS requests for an extension when they suspect that you paid less taxes in a given year and they feel that they will run out of time to conduct an audit within the 3-year limitation period.
Taxpayers Right to Refuse or Limit Extension The taxpayer has a right to refuse an extension.
He or she also has a right to limit any permitted extension to some specific aspects of a tax return or to a limited time period.
You can, for example, limit the extension to one year or limit the extension to Schedule D of the 1040 Tax Return Form.
When the IRS contacts you seeking an extension, they will always make you aware of these rights before requesting the extension.
What to do In Case the IRS Contacts you for an Extension In as much as it is your right to refuse an IRS audit extension, it is always best to agree to the extension.
By the time the IRS contacts you for an extension, they will usually have preliminary evidence that indicate that you owe back taxes.
They are therefore, seeking the audit to prove these preliminary evidences.
Therefore, if you turn down the request for an extension, the IRS will most likely send you a notice assessing extra taxes.
However, if you agree to an extension, you will have time to prepare for the audit and you can fight your case against any back taxes.
How to Prepare for the Audit Once you agree to an extension, you will need to take the time to prepare for the audit.
To ensure that you are prepared for any IRS audit, it is always advisable to keep proper tax records.
Therefore, depending on the year that the IRS is seeking an audit, you can gather the required support documentation.
If your records are not in good shape, the extension is an ideal time to gather and request for any records from any third parties that may have the copies of documents that you need.
You may also consider consulting with a tax professional to help you prepare for the audit.