How Often Does the IRS Audit Previous Tax Years?

If you’re white-knuckling your chances of audit by the IRS, you may be able to relax your grip a bit when you find out how slim your chances of being chosen actually are. And on top of that, even if you are selected for an audit, it doesn’t necessarily point to a potential problem with any past tax returns. Your audit may simply be the result of a computer-generated algorithm that earmarked one or more of your tax returns in a random sampling.

Tip

The typical window of time for the IRS to initiate a tax audit is within the past three years from the due date of your tax return.

IRS Audit Time Frame

Although the goal of the IRS for quickly auditing tax returns is within the past three years, most tax audits are completed within the most recent two years. Congress established this three-year period, which represents the agency’s general statute of limitations. Six years is typically the furthest retroactive reach of the IRS tax audit arm, which happens only sometimes for returns that the agency deems to contain “substantial errors.”

Understand the IRS Audit Process

An IRS audit reviews the financial information for individuals and businesses as reported on their tax returns. The agency’s examination ensures that everything is correctly reported under current tax laws. After a tax return is randomly selected by a computer program or hand-selected by an examiner, an IRS auditor reviews all the reported information on the return. If the auditor finds any errors, or has any questions about the return, the return is flagged and forwarded to an examining group, where it is further reviewed. When returns are earmarked for an audit, the IRS notifies taxpayers by mail to schedule an audit by mail or in person.

Know the IRS Audit Statistics

Although the odds of getting audited are slim, this may offer little consolation to those taxpayers who must go through the process. In 2017, the IRS audited more than 1 million tax returns with a whopping 99 percent passing muster. And in 2016, the IRS issued refunds in the amount of $931 million for 31,000 of the audits that it performed.

Learn Important IRS Audit Exceptions

The IRS can override the typical three-year statute of limitations and even the six-year exception to this rule if information included on or omitted from a tax return raises a red flag. For example, if a business fails to file Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations), not only is a red flag raised but this also triggers no limit on the time during which the IRS can audit an affected tax return. And if the IRS can prove civil or criminal fraud by a taxpayer’s not filing a tax return or filing a fraudulent return, there is no statute of limitations for performing an audit.

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About the Author

Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.


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