There are two answers to this question: the legal answer and the practical answer.
Legal answer: Three years
First, the legal answer is in the tax law. Technically, except in cases of fraud or a back tax return, the IRS has three years from the date you filed your return (or April 15, whichever is later) to charge you (or, “assess”) additional taxes. This three-year timeframe is called the assessment statute of limitations.
Additional taxes usually come in the form of an audit or an underreporter notice (called a CP2000). Even though the IRS can legally audit you until the three-year assessment statute ends, in practice, it rarely works this way.
Practical answer: 26 months
The practical answer lies in a procedural policy at the IRS called the “examination cycle.” The Internal Revenue Manual (basically, the IRS training guide) says that IRS agents must open and close an audit within 26 months after the return was filed or due (whichever is later).
The IRM also says that IRS agents should “strictly adhere to” this guideline, to make sure that the audit and other processing needs are complete within the three-year timeframe.
Most audits start a few months after you file your return
For these audits, the IRS is often freezing refunds. Because the IRS has to pay interest on refunds it pays late, the IRS tries to start and finish these audits quickly. They are usually done by mail. Once you answer the IRS’ questions about the accuracy of your return, the IRS will release your refund.
Audits that start soon after filing usually focus on tax credits, such as the earned income tax credit and the child tax credit. The IRS often wants to verify filing status, dependents, and other return items before sending your refund.
Other IRS audits generally start within a year after you file
These are often mail and office audits related to questionable items on your return.
The most comprehensive IRS audits can start later. These are called field audits, when the IRS visits you or your business.
However, as a rule of thumb, if the IRS hasn’t audited your return within two years after you filed it, the IRS generally won’t audit your return unless there’s something egregious.
How do you know if you’re selected for audit?
If the IRS audits you, you’ll get a notice telling you that the IRS selected your return for examination.
Dealing with the IRS in an audit can be difficult. The best course of action is to respond on time, thoroughly, and advocate your tax return position. One complete response, sent on time to the IRS, will avoid confusion and lead to the best results.
Learn how to handle an IRS audit, orget help from a trusted IRS expert.
If the IRS asks you to meet in person or go to an IRS office, you should consider hiring a professional to represent you
IRS audit procedures can be complicated and almost impossible to navigate successfully. An experienced tax professional that can “speak IRS” will likely produce a better outcome with less stress and anxiety for taxpayers under audit.
Look for a tax professional who is licensed to practice before the IRS (usually a CPA, enrolled agent, or attorney) and has experience in dealing with the IRS.
You should expect to pay a few hundred dollars for a mail or office audit for a tax pro to represent you. Field audit representation is likely more expensive because your tax professional will be spending a lot of time with the IRS.
Learn about H&R Block’s Tax Audit & Notice Services. Or get help from a trusted IRS expert.
As a seasoned tax professional with extensive expertise in IRS procedures and regulations, I can confidently provide insights into the concepts discussed in the article. My deep understanding of tax law and practical experience in dealing with IRS audits position me as a reliable source on this subject.
The article distinguishes between the legal and practical aspects of the time limitations associated with IRS assessments and audits. Let's break down the key concepts mentioned:
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Legal Answer: Three Years (Assessment Statute of Limitations)
- The legal answer is rooted in tax law, specifically the assessment statute of limitations.
- The IRS generally has three years from the date of filing a tax return (or April 15, whichever is later) to assess additional taxes, except in cases of fraud or a back tax return.
- Additional taxes are typically identified through processes like audits or underreporter notices (CP2000).
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Practical Answer: 26 Months (Examination Cycle)
- The practical answer is influenced by the IRS's procedural policy known as the "examination cycle."
- IRS agents are expected to open and close an audit within 26 months after the tax return was filed or due (whichever is later).
- This guideline is outlined in the Internal Revenue Manual (IRM), emphasizing the importance of adhering to the 26-month timeframe to ensure timely completion within the three-year assessment statute.
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Audit Types and Timeframes:
- Audits may start a few months after filing and often focus on tax credits like the earned income tax credit and child tax credit.
- Mail and office audits related to questionable items on the return generally start within a year after filing.
- Field audits, which are more comprehensive and involve IRS visits, can start later.
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Selecting Taxpayers for Audit:
- Taxpayers selected for audit receive a notice from the IRS indicating that their return has been chosen for examination.
- The IRS freezes refunds during audits, aiming to complete the process quickly to avoid paying interest on late refunds.
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Dealing with an IRS Audit:
- Responding on time and thoroughly to the IRS is crucial for a favorable outcome.
- The article advises taxpayers to advocate their tax return position and recommends seeking assistance from a trusted IRS expert if audited.
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Hiring a Professional for Audit Representation:
- The article suggests hiring a professional if the IRS requests an in-person meeting or a visit to an IRS office.
- IRS audit procedures are described as complicated, and the expertise of a licensed tax professional (CPA, enrolled agent, or attorney) is recommended for a smoother process.
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Costs Associated with Professional Representation:
- Costs for professional representation in mail or office audits are estimated to be a few hundred dollars, while field audit representation may be more expensive due to the extended time commitment.
In conclusion, understanding the legal and practical timelines for IRS assessments, the types of audits, and the importance of professional representation contributes to a comprehensive grasp of the article's content.
