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Can the IRS Audit Back to a Certain Date?
In general, the IRS includes all tax returns filed in the last three years when conducting an audit. If the IRS finds a significant error during the audit, it can audit other prior years. The IRS rarely audits more than six-years in a single audit.
There is a six-year statute of limitation for IRS audits, but there are some tax issues that have no statute of limitation. There is no time limit on an audit if, for example, you do not file form 3520 relating to foreign earnings, inheritances, or gifts exceeding $100,000.
Also, there are a few other exceptions. If you’ve never filed a return with the IRS, there is no statute of limitations. Also, if your return is not signed, it can be considered unfiled by the IRS. If a fraudulent return has been filed, the IRS can consider it not filed.
What Is an Audit?
An IRS audit involves the examination and review of an individual’s or organization’s financial records. The IRS wants to ensure that all taxpayers are following the tax laws. Tax audits are conducted to ensure that there is no tax evasion.
Most audits occur at random. Certain tax issues can trigger an IRS audit and make it more likely.
Common IRS audit triggers are:
Failure of All Taxpayers to Declare Their Income
The IRS receives copies of your W-2s, 1099s. The IRS can request a review if you do not report a 1099 in your tax return. You should immediately contact the issuer if there are any discrepancies in your W-2s and 1099s.
High Income
The IRS has stated that high-income earners have a higher audit rate than those with lower incomes. According to the IRS taxpayers who earn $10 million or more face a higher audit rate.
For those who earn $10 million or more, the exam rate is 8.16 percent. The percentage for those who earn between $1 million and 10 million dollars is 2.53. Audit rates are less than 1 percent for incomes under that threshold.
Large Charitable Deductions
It’s easy to prove how much you donated when you write a charity check. Donating an item is a whole different story. Tax audits can be caused by the taxpayer’s failure to estimate the value of an item.
If you are donating an item worth $500 or more, it is best to have a professional appraiser estimate the fair market price.
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Math errors
Your tax return may be audited if a math mistake is discovered. It doesn’t matter if the IRS or you made the mistake.
Excessive Deductions
The IRS is aware of the average deductions that taxpayers within your income bracket make for certain items. You may be subject to IRS scrutiny if you exceed the averages. Do not hesitate to claim your deductions as long as they are well documented and legitimate.
Schedule C
Audits of self-employed taxpayers can be more severe than audits of salaried employees. This is especially true if your business has a tendency to operate in cash. The IRS is aware that self-employed individuals have more chances to conceal income and commit fraud than employees of third parties.
Home Office Deduction
The criteria for the deduction for home office is quite strict. Only self-employed taxpayers or independent contractors who meet the requirements can claim this deduction. Home office deduction is only available to self-employed taxpayers and independent contractors who meet certain requirements. The home office deduction is not available to employees who work remotely.
Deductions for Business Meals, Travel and Entertainment
The IRS is very careful to check this category as it’s abused a lot. You should keep receipts, as well as documentation of the purpose and attendance for every expense. These expenses are not deductible if you were reimbursed by your employer.
Earned Income Tax credit
Audits of returns claiming EITC occur at a much higher rate. EITC payments can be made by mistake, and the IRS is interested in examining EITC claims to prevent fraud.
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What Information Do I Need to Include in an Audit?
You may be asked to provide certain records. Like documents that support your claim.
These records may include:
- Bills
- Canceled checks
- Legal papers
- Loan Agreements
- Receiver
The IRS may ask for medical records and dental records. They might also want tickets used for business, logs, diaries or other documents.
How Long Does It Take to Complete an IRS Audit?
Most IRS audits last less than two (2) years. The length of an audit is determined by a number of factors, including the type of audit and the complexity of issues relating to your tax return.
The IRS will not be able to resolve an audit if the taxpayer disagrees. Taxpayers genuinely disputing a determination made by an IRS agent based on their tax returns should seek advice from an experienced tax lawyer or tax advisor familiar with IRS audits.
We’ll be happy to connect you with one of our partners who can help you.
What Happens if You Accept the Audit Results?
If you are in agreement with the audit findings, depending on the type, you may sign an examination report, or another form. The IRS offers several options for paying additional taxes. You will be informed by the IRS how to pay.
What Will Happen if You Don’t Agree to the Audit Results?
You have several options if you disagree with IRS audit findings, and you can request a meeting with an IRS manager.
Also you can pursue mediation or Alternative Dispute Resolution. A trained mediator will work with you and an IRS employee assigned your case in order to reach an agreement. If you’re looking to resolve your dispute quickly, have a limited number of issues at stake, and can provide evidence that supports your position, mediation is advisable. Mediation isn’t a way to reveal new information or buy time.
You may appeal if you have enough time left. The IRS created the Independent Office of Appeals to help resolve disputes without the need for litigation. This process aims to be fair to both you and the government.
You should speak to a professional, who can represent you in negotiations with the IRS.
What Can You Do to Avoid Audits in the Future?
There are ways to avoid audits in the future. You can keep your IRS position in check by keeping track of your tax records and books. Also, hire a tax advisor who is experienced to prepare your tax returns.
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