If anything about your federal tax return seems out of the ordinary, you will usually hear from the Internal Revenue Service. One of the main functions of the IRS is to ensure that Americans are paying their fair share of tax, both by reporting all of their income and taking only appropriate deductions. In most cases, the IRS only has a few years during which they can audit your tax return, but that time frame can be extended.
Standard Audit Time
Typically, the IRS can choose to audit your tax return for up to three years from the later date -- when you filed your return or the date the return was due. For example, when you file your return for the 2011 tax year, it is due on April 15, 2012. If you file any time before that date, the IRS has until April 15, 2015 to audit your return. If you file your return on August 1, 2012, the IRS can audit you all the way up to August 1, 2015. However, since the IRS must usually complete the audit within that three-year time frame, most returns are selected for audit within the 18- to24-month period after filing.
Extended Audit Time
If you have already been audited, the time frames for the completion of the audit remain intact. If you are waiting to hear back from the IRS regarding the results of your audit, the IRS must reply to you and complete the audit within three years. To avoid running afoul of the three-year audit rule, in certain instances the IRS may ask you to voluntarily extend the time period. This can also happen if you challenge the findings of a completed audit. or if the original audit is complex enough that the IRS examiner simply needs more time. Although it may seem counter-intuitive to grant this permission, in most cases it works to your advantage to cooperate with the IRS rather than to antagonize it.
The main exception to the three-year audit rule is in cases of tax fraud. If you have purposely filed a fraudulent return and the IRS can prove it, there is no statute of limitations on the audit of your tax return. However, even in these cases, the IRS often does not go back more than six years to audit a return.
Types of Audits
When you hear the word "audit" you may automatically envision a face-to-face meeting with an IRS revenue agent. In reality, there are three types of audits, and they do not all involve face-to-face meetings. The most common types of IRS audit is called a "correspondence audit," since it simply involves letters and documentation passing back and forth between taxpayers and the IRS. If you are called for an office audit, you must arrive at an IRS office with documents that IRS has requested for review. The third type of audit is the field audit, in which an IRS agent actually shows up at your home or place of businesses to review your return. Each type of audit is subject to the standard three-year time limit.