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IRS Audits and Statute of Limitations

If you are like most people, the mere thought of an IRS audit sends shivers up-and-down your spine. However, the truth of the matter is that the IRS does not conduct a large percentage of audits on a regular basis. That being said, certain triggers do exist that will make it more likely for you to undergo an audit by the IRS. In general, a computer analysis of your tax return generates a score, which is used to determine whether or not your tax return is worthy of an audit. While specific “red flags” may vary from year-to-year, there are identifiable criteria that are more likely to lead to a tax audit.

Factors that may lead to an IRS tax audit include:

  • A high income
  • Self-employment with high business expense claimed for a portion of the home or large amount of cash receivables
  • Excessive charitable donations, especially in regard to the level of your income
  • Undergoing an IRS tax audit in a previous year with problematic issues
  • Large difference in your income level from the previous year

The good news is that if you claim only what you are entitled to in credits and deductions, while providing an accurate portrayal of your income, you shouldn’t have any problems whatsoever, even if your tax return is audited. Your IRS audit should be quick and easy, as long as you can provide documentation for all of the information that you submitted, including income, credits, and deductions.

The Audit Process

In many instances, an IRS tax audit is processed through the mail. In other cases, it takes place at the individual’s home, the IRS office, or the office of a third party such as your accountant, lawyer, or tax advisor. The examiner assigned to your audit will provide you with details on which items on your tax return require substantiation. If you believe that you can handle the audit on your own (as in the case of a simple clarification), then you can handle it on your own. However, if the audit promises to be involved, you may want to have a professional accompany you to meeting with the IRS representative. At iQTAXX, we stand behind our clients and assist them whenever necessary during an IRS tax audit. The results of your audit can include either a refund or additional taxes and penalties.

Statute of Limitations

An IRS tax audit must be conducted within three years of the filing deadline. However, the statute of limitations to collect unpaid taxes is ten years. Tax payers must file any claims they want to place for credits or refunds within three years of filing the tax return, or, if a tax was paid, they must file within two years of the payment.