Statute of Limitation for Tax Audits

One of the things that create a considerable amount of stress on people who owe back taxes with the IRS is how far can they audit you.  Because once you owe the IRS money, you start to stress and assume that they can do all kinds of things to you as well as audit prior returns to go after you for more money.  Well, generally, there is a three day statute of limitation.  That means that they have three years to audit your tax returns after you file them.

This is set forth in the Internal Revenue Code Section 6501(a) and 301.6501(a)-1(a) of the Income Tax Regulations.  However there is an exception.  The exception works as follows.  If after you get audited by the IRS and in the audit they find that you omitted in excess of 25% of your gross income in your tax return then they go back as far as six years to audit you.  See IRC 6501(e) and Income Tax Regulation 301.6501(e)-1.

The three year statute of limitation also does not apply at all if you filed a false tax returned or a fraudulent tax return with the intent to evade taxes pursuant to IRC 6501(c)(1) and Income Tax Regulation Section 301.6501(c)-1.

Types of tax audits

Being audited can be a scary prospect, especially if you do not know what to expect or prepare for. Not all audits by the IRS are the same and they all should not be treated as such. The following provides information on the similarities and difference between three types of tax audits: office audits, correspondence audits, and field/home audits. This information can be useful in helping you prepare for what to expect as well as let you know the important differences between each type. Use this information as a foundation to begin preparing for your audit type as well as to understand the severity of each.

Office Audit

In Office types of tax audits, there is an actual face to face meeting requirement between you and the IRS representative. The announcement that this meeting will tax place is done via a mailed correspondence in which the type, date, and time of the meeting are explained. It may also ask that you reply to confirm or set up a different time to meet with the representative. During this meeting, the auditors focus on assessing important or significant items on your tax filings.

These meetings can become very tense and may catch you off guard with their questions. For this reason, during these types of tax audits, or more importantly before, it may become important that you talk to a tax professional to ensure that you have all the information you need, as well as no what questions to and what questions not to answer. This can save you headaches as well as leave you feeling more prepared for your discussion with them.

Correspondence Audit

The most popular and commonly asked for among the types of tax audits is the correspondence audit. This audit requires, most often, that individual filers send information via mail that the government will review. You will receive notification that you or your business have been selected for a correspondence audit through postal mail and you must, in turn, reply in the same manner.

The reasoning for such types of tax audits is that what was stated by you is different than what a third party documentation states. Of the documentations asked to be mailed back to the IRS, the most common among these are specific itemized deduction information and stock transaction. It also may be asked that real estate documentation is also provided.

Field / Home Audit

The most important types of tax audits are those in which the IRS comes to your home and business to audit you. These can be the most serious because a top auditor will attend and talk to you about what you placed on your tax return. Usually, the individuals or business who will see these types of tax audits are those that have earned over one hundred thousand dollars that year. Though all types of tax audits may benefit from help and guidance, it is among these types that the most need for tax preparation and consultation is suggested.