The Internal Revenue Service (IRS) is the primary agency responsible for enforcing the nation’s tax laws. As such, they are granted the authority to audit taxpayers to ensure that taxes are paid in full and promptly.
Knowing how far back the IRS can audit is essential for tax filers, as it can help them keep track of their tax records and ensure they comply with the law. This blog will explore the parameters of the IRS audit process and how far back the IRS can audit.
Overview of the IRS Auditing Process
The IRS auditing process ensures that individuals and businesses comply with US tax laws. The process ensures that taxpayers accurately report income, deductions, and other related tax information. The IRS will review and verify certain items on a taxpayer’s tax return during an audit. This includes examining documents, such as bank statements and receipts, to ensure that the information reported is accurate.
The IRS may also contact third-party sources, such as employers or financial institutions, to verify the information. The IRS may conduct a field audit or a correspondence audit. A field audit involves a face-to-face meeting with an IRS auditor, often at the taxpayer’s home or business. During a correspondence audit, the IRS will request additional information from the taxpayer regarding certain items on the tax return. The taxpayer must respond with the requested items within a specified timeframe.
Statutory Limitations on IRS Audits
Statutory limitations limit the IRS on the time to conduct an audit. This is referred to as the “statute of limitations” for IRS audits. If the taxpayer omits more than 25% of the income reported on the tax return, the IRS may extend the statute of limitations to six years. The taxpayer may consult a tax consultation service to understand the process clearly.
Determining the Extent of an Audit
The extent of an audit is dependent on the individual taxpayer’s situation. An audit may be as straightforward as verifying the income and expenses reported on the tax return or as in-depth as examining all financial records related to the taxpayer. The IRS may also request additional documentation to substantiate any deductions or credits claimed on the tax return.
Methods for Limiting Audit Exposure
Taxpayers can take certain steps to limit their audit exposure. It is important to keep accurate and detailed records of all income and expenses, and any deductions or credits are taken. It is also important to ensure that all tax forms are filled out accurately and completely. Additionally, taxpayers should avoid taking any deductions or credits they are not entitled to, as this may increase the chances of an audit.
The IRS has the authority to audit any taxpayer’s return for any filing year, regardless of when the return was filed. However, IRS audits are limited by a statute of limitations and may not be conducted more than three years from the due date of the return or two years from the date the tax was paid, whichever is later.
Taxpayers can take certain steps to limit their audit exposure with the help of tax consultation services, such as keeping accurate and detailed financial records and avoiding taking any deductions or credits they are not entitled to.