What is the IRS audit timeline for US expats?
Published on February 14, 2024
by Deborshi Choudhury, EA
Deborshi Choudhury, an IRS Enrolled Agent with 16 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UAE and Canada.
Table of Contents
What is the timeframe for IRS audits on tax returns?
The Internal Revenue Service (IRS) generally has up to three years to audit your tax returns. This timeframe allows them to review returns filed within the last three years.
For US expatriates, it’s crucial to keep precise records during this period, as your tax filings are subject to examination within this three-year window.
Can the IRS audit tax returns beyond the three-year mark?
Yes, the IRS has the authority to extend its audit beyond the standard three-year period under certain conditions. If there’s a suspicion of significant income underreporting—defined as omitting more than 25% of your gross income—the IRS can look into your finances going back six years.
Furthermore, in instances of tax fraud or if a tax return was not filed, the IRS’s ability to audit extends indefinitely, allowing them to review tax returns from any year without limitation.
What triggers an IRS audit?
- Random Selection: The IRS occasionally selects tax returns at random for auditing.
- Reporting Discrepancies: Audits can be triggered if there’s a mismatch between the information on your tax return and data reported to the IRS by employers, financial institutions, or other entities.
- Complex or Unusual Financial Activities: Tax returns featuring complex transactions or unusual financial activities, particularly those involving foreign income and assets, are more susceptible to being audited.
What’s the process for being notified about an IRS audit?
When the IRS selects you for an audit, they will inform you through a formal letter sent via postal mail. This letter will detail the years and items on your tax return that are under scrutiny.
It’s important to note that the IRS always initiates audit notifications through mail, not email or phone calls, to protect your privacy and security.
How does the IRS carry out audits?
The IRS employs various methods to conduct audits, depending on the complexity of the issues involved:
- Correspondence Audit: For simpler inquiries, the IRS may request additional information through mail.
- Office Audit: More intricate matters may necessitate a visit to an IRS office for a face-to-face discussion about your return.
- Field Audit: In the most detailed audits, an IRS agent might visit your home, business, or accountant’s office to thoroughly review your financial records.
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What documentation is required for an IRS audit?
During an audit, you may be asked to provide:
- Supporting Documents: Such as receipts, invoices, contracts, loan agreements, and employment records that verify the information on your tax return.
- Record Explanations: You may also need to explain how these documents were used
How can I confirm the IRS has received my audit response?
To ensure the IRS has acknowledged your response to an audit notice, consider the following steps:
- Certified Mail: Utilize certified mail with a return receipt when sending any documents to the IRS. This method provides you with a record that the IRS has received your package.
- Proactive Follow-Up: If you haven’t received any communication from the IRS within about 30 days after mailing your documents, it’s wise to initiate a follow-up. You can do this by calling the contact number provided in your audit notification letter to verify receipt and inquire about the status of your audit.
What if I need additional time to gather information for my audit?
If you find yourself in need of more time to compile the necessary documentation for your audit, the IRS allows you to request an extension:
- Immediate Communication: Contact the IRS agent handling your case directly and as soon as possible. Explain your situation clearly, including why you need more time and how much additional time you’re requesting.
- Reasonable Extensions: The IRS is generally open to granting reasonable extensions if they believe the extra time will result in a more accurate and thorough review of your tax situation.
What rights do I have during an IRS audit?
During an IRS audit, you’re entitled to certain protections and rights, including:
- The Right to Representation: You’re allowed to engage a tax professional, such as an attorney, CPA, or enrolled agent, to represent you in discussions with the IRS.
- The Right to Privacy and Confidentiality: Your tax information should be treated with the utmost respect for your privacy, and any data you provide to the IRS must be kept confidential.
- The Right to Understand IRS Requests: You’re entitled to know why the IRS is requesting specific information, how it will be used, and the consequences of failing to provide it.
- The Right to Appeal: Should you disagree with the IRS’s conclusions, you have the right to challenge their findings through an appeal.
How is an IRS audit resolved?
An IRS audit can be resolved in one of several ways:
- No Change: If the IRS determines your tax return is accurate, they will issue a “no change” notice, indicating you owe no additional taxes.
- Agreement: If the IRS suggests modifications to your tax return and you agree, you’ll sign a document (such as an examination report) acknowledging this agreement and, if necessary, pay any additional taxes due.
- Disagreement: If you don’t agree with the IRS’s proposed changes, you have options to contest their findings, including requesting a review by an IRS manager or filing an appeal.
What should I do if I agree with the audit’s outcome?
If you find the IRS audit conclusions acceptable, the next steps involve formalizing your agreement. This typically means signing an IRS-provided agreement form to confirm your acceptance of the audit results. Following this, if the audit determines that additional taxes are owed, you’ll be required to settle this outstanding amount.
How can I contest the audit findings if I disagree?
Should you find yourself at odds with the audit findings, you have several avenues to pursue:
- Request an IRS Manager Review: You can ask for your case to be reviewed by a higher authority within the IRS for a fresh perspective.
- File an Appeal: Disagreements that remain after speaking with an IRS manager can be escalated to the IRS Office of Appeals, where you’ll have the opportunity to argue your case before an independent appeals officer.
- Consider Mediation or Tax Court: If you’re convinced the audit findings are incorrect, mediation offers a way to reach a compromise, or you can present your case in tax court as a final recourse.
Is there a limit to consecutive IRS audits?
The IRS doesn’t have a set limit on the number of consecutive years they can audit an individual. Continuous audits over several years are uncommon but can occur if significant discrepancies or issues are discovered in your tax filings across multiple years.
If there’s evidence of consistent tax evasion, significant errors, or patterns of dubious deductions, the IRS may scrutinize your returns more closely over successive years.
Is it possible to be audited by the IRS two years consecutively?
Yes, the IRS has the authority to audit your tax returns for two consecutive years.
Such back-to-back audits typically arise if the IRS identifies serious or repeated problems within your filings. While not common, these consecutive audits are triggered by notable errors or signs of non-compliant behavior in your tax returns.
What’s the possibility of an IRS audit after three years?
The general statute of limitations for an IRS audit is three years from the date of filing your tax return. Nonetheless, exceptions exist that may extend this period.
For instance, if your income was underreported by more than 25%, the IRS gains the ability to audit your taxes up to six years after filing. In situations involving fraud or a failure to file a return, the IRS’s ability to audit extends indefinitely, allowing them to review your taxes at any point beyond the three-year mark.
Can the IRS pursue me for taxes after a decade?
When it comes to collecting unpaid taxes, the IRS typically has a decade-long window, starting from the date the tax was initially assessed.
This 10-year statute of limitations can be paused or extended under certain circumstances, such as during bankruptcy proceedings or if the taxpayer spends a significant time outside the U.S. It’s crucial to understand that while the IRS may not start an audit after ten years, they retain the right to collect any due taxes within this ten-year period.
