Audits and the Assessment Statute of Limitations
Audits are almost never resolved in a day. From the moment you receive an audit notice to a final resolution (including appeals), you may need two years or longer. The IRS must close the audit and take action to assess the additional tax, penalties, and interest before the assessment statute of limitations (the “Assessment Statute Expiration Date or “ASED”) expires. The normal ASED is three years from the date of filing a return.
For a 4/15/2019 filer, the normal statute would expire on 4/15/2022. There are exceptions to the three-year ASED. Two more common exceptions to the 3-year ASED include if a taxpayer excludes more than 25% of income (now a 6-year ASED) or commits fraud (fraud has no ASED). Often, the IRS will ask for an extension of the ASED which—if agreed to by the taxpayer—allows the IRS to continue the audit for a longer period as stated in the extension agreement.
Most 1040 audits are completed within 26 months (27 months for businesses) after filing. Why? The IRS, as a rule, sets this time frame so it can have adequate time to assess the additional tax before the ASED expires (the IRS calls this “protecting the ASED”). Also, the IRS cannot start an audit with 12 months or less remaining on the ASED unless it gets special internal approval. As stated above, there are exceptions to this general time frame.
Time frames for different audit types/actions
If you are involved in an audit, here are potential time frames you need to know:
|Type of Audit
One to nine-month resolution
|Most mail audits can be resolved in one month if the taxpayer addresses the IRS letter instantly with one thorough and complete response. Multiple responses and disputes can last even longer than 9 months. Add more time if the audit is appealed.
|Face-to-Face (office/field) Audit
Three to 15-month resolution
|Office audits generally take less time if the initial meeting with the IRS completely addresses all issues. Field audits are generally extensive (small business audits) and time duration can be shortened by thorough preparation. Add more time if the audit is appealed.
Four to 15-month resolution
|Audit appeal appointment times generally begin about 3 ½ months after the close of the audit. The average audit appeals resolution time is 11 months
Three to nine-month resolution
|An accepted audit reconsideration ordinarily takes about three months to assign to an IRS auditor. Thorough evidence and documentation can lower duration time. If the dispute is only for accuracy penalties, the process can take up to 3 years.
Tips to spend less time with the IRS in an audit
Taxpayers cannot control the amount of time it takes for the IRS to conduct an audit. IRS auditors sometimes they have too much on their plate to conduct the audit quickly. It helps to understand the mindset of your auditors so that you can effectively deal with them during the examination.
However, taxpayers can follow a few tips to minimize their time with the IRS. Timely, complete responses are the key to resolving the most common audit – the mail audit.
Face-to-Face audit duration usually is dependent on the complexity of the taxpayer and the condition of their records. Most field audits are conducted on the most complex taxpayers, including business entities. Naturally, the field audit takes longer to complete. For Face-to-Face audits, the prepared taxpayer who is in a position to control the information flow with the IRS usually spends the least amount of time with the IRS. A prepared taxpayer typically anticipates IRS questions and can provide answers that avoid additional IRS audit inquiries.
Finally, appealing an audit’s outcome can add considerable time to the audit process. However, appeals are important parts of the audit process. Taxpayers exhausted from the audit should always dispute valid disagreements, including penalty disputes, with the IRS Independent Office of Appeals. This extra time is usually worth the effort.
One final tip: taxpayers should consider using a licensed tax professional to help with Face-to-Face audits and disputing audits with IRS Appeals. Experienced tax professionals understand the audit process and how to effectively manage the audit to reduce the amount of time spent dealing with the IRS. For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.