Did you know that 0.4% of people who file their taxes get audited? While that doesn’t sound like a very high percentage, it could happen to anyone. When it does, you’ll want to be prepared.
Just the thought of dealing with the bureaucracy of the IRS is enough to send most people into a panic. What many people don’t realize, however, is that audits don’t have to be a fearsome experience. In fact, most audits are completed in a matter of months to under a year.
So, if you’re sweating at the prospect of an audit, take a deep breath and relax—we’re about to walk you through the IRS audit process and how long you can expect the process to take.
How Does an IRS Audit Work?
First and foremost, it’s important to understand that there are different types of tax audits. Each comes with a different process and timeframe (which we’ll get into in just a bit). However, there are some common things you can expect to experience with any IRS audit.
The IRS audit process starts digitally. Every tax return gets put through a computer and assigned a DIF score. This score looks at any potential changes from the previous year, such as increased revenue.
Then, your tax return is assigned a UDIF score. This score assesses the potential that there is unreported income on a return. Outside of potential unreported income, the IRS is looking for suspicious deductions or large travel expenses as they calculate your UDIF score.
The higher that score is, the more likely it is that the IRS will audit you. Returns with high scores get sent to a reviewer at the IRS who will manually review your tax return. If they think you need an audit, they’ll send it to a local field office where an IRS agent will perform a tax audit.
Understanding the Types of Audits
Now that you know how an IRS tax audit works, let’s walk you through the different types of audits you might see. There are three main types and each is based on where they occur.
For example, a correspondence audit occurs via correspondence, such as mail or the telephone. Likewise, depending on the discrepancies they think they’ve found in your tax return, you might be subject to an office or field audit.
The Correspondence Audit
A correspondence audit is the least “severe” of the different types of IRS audits. Basically, the IRS will send you a letter if they find an error on your return asking for information on how this error occurred.
These are less invasive than an office-level examination, which requires agents to have more knowledge of what’s going on with returns in order to make sure everything is correct. Oftentimes, they won’t even review your file further until you’ve had a chance to respond.
The Office Audit
You may also hear office audits referred to as Area Office (AO) Examinations. This is because you’ll likely have to head into an office near where you live and pay taxes in order to visit with an agent in person.
When is an office audit necessary? These are typically reserved for more complex issues that can’t be resolved via a correspondence audit. This type of audit could ultimately include a face-to-face interview or investigation into your books and records.
In this case, the examiner is looking for verification of your income and deductions. This means you should ensure you’re always keeping accurate, up-to-date records.
The Field Audit
Finally, a field audit is the most “severe” or “complex” of the different types of IRS audits. This is similar to what you see in movies (albeit far less dramatic) when an IRS agent shows up at your front door or office.
Field audits are reserved for the most complex cases and require an individual, or sometimes even a team, of examiners that visit a business location to check records and operations in person.
How Long Does An IRS Audit Take to Complete?
First, it’s important to understand that there’s a limit within which the IRS can ask for an audit. The statute expires three years from the date of filing your tax return.
This means that if you filed your 2017 tax return on April 15th, 2017, the IRS had until April 15th, 2020 to assess your tax situation and request an audit.
Once an audit is requested, though, how long does that take to finish? In most cases, they’re done within a year. In fact, the IRS Training Guide states they should work to finish cases within 26 months.
However, the type of IRS audit occurring makes a difference in audit length. For example, correspondence audits and office audits typically finish within three to six months.
Field audits are the only ones that tend to take quite a while, especially if there is tax fraud or tax evasion involved. If that’s the case, these audits can take over a year. In the event that there are massive amounts of unreported income, they can extend to at least six years.
What to Do If You’re Audited
If you’re being audited, our best suggestion is to provide the IRS with everything they’re asking for as quickly, transparently, and calmly as possible. If you’ve kept great records, then this shouldn’t be an issue and the discrepancies are probably due to simple human error.
Likewise, it’s important to understand that you don’t have to agree with the IRS’ final decision. After the agent makes their final decision, you can agree with the audit report or disagree. If you disagree, you can work with the IRS auditor to resolve the issue or file a dispute.
Hire a Tax Pro to Avoid IRS Audits
So, how long does an IRS audit take? It typically takes anywhere from three months to a year depending on your case. Whatever the case may be, an audit is usually a time-consuming and costly event.
What’s the best way to avoid an IRS audit completely? Work with a tax pro like Fiscal Solutions Group to help reduce worries and ensure compliance.Our licensed tax specialists are here to help. Get in touch today for a consultation.