IRS Audit FAQ

Answers to frequently asked questions about a taxpayer's worst nightmare: the audit.

I am being audited and the deadline for filing this year's return is fast approaching. Should I file?

Not if you can help it. The danger in filing is that the new return is fair game for the auditor, and she may get permission from her manager to expand the audit to include that return.

Instead of filing, file for an automatic extension until August 15. To do this, get IRS Form 4868, Application for Automatic Extension of Time, and send it to the IRS by April 15. But be sure to pay all taxes due on April 15. If the audit is still going on in August, request a second extension by filing IRS Form 2688, Application for Additional Extension of Time, by August 15. If the second extension is granted, you will have until October 15 to file your return.

If the audit is still alive on October 15, don't file until the audit is completed. As long as you have paid all the taxes due and have no fraudulent intent, you won't incur any penalties or interest for not meeting the deadline. If you owe additional money, send in your payment with a letter stating that the payment is to be applied to the unfiled tax year. The auditor can't make you file your return; if she asks you about it, simply say, "I am not yet ready to file."

For more on filing a late return and facing an IRS audit, see Stand Up to the IRS, by tax attorney Frederick Daily (Nolo).

I am being audited and I haven't heard from the auditor for months. What can I do to get the audit over with?

Why do anything? IRS auditors are instructed to close audits within 28 months of the date you filed your tax return or the date it was due (April 15), whichever is later. For example, if you filed your 2009 return on April 15, 2010, the IRS wants the audit completed by August 15, 2012. Legally, the IRS has an additional eight months (until April 14, 2013), but auditors are instructed to complete the audit with at least eight months to spare so the IRS has time to process any appeals.

If you haven't heard from the auditor, it could mean a number of things. The auditor may have been transferred or terminated. Or your file may be sitting in a pile awaiting processing somewhere in the IRS. When your file resurfaces, a new auditor is under a deadline to close it, which can work in your favor. And, in the best of all worlds, the time limit for completing the audit may expire while your file is in IRS never-never land. So leave the sleeping dog alone.

For more tips on handling an audit, see Nolo's Checklist: How to Survive a Tax Audit.

Do I have to let the IRS into my home?

No. An IRS employee may not enter your home without an express invitation from you or another rightful occupant. The only exception is if the IRS has a court order, which is very rare. A field auditor may ask to come in to verify your home office deduction, but you don't have to let him in. Of course, if you don't, he'll no doubt disallow the deduction. Your choice.

For more on handling a tax audit, see Surviving an IRS Tax Audit, by Frederick Daily (Nolo).

The auditor is impossible to get along with. What can I do?

Try some basic psychology. Put yourself into the shoes of that person. Most IRS employees are 9-to-5 types just trying to do a job and get through the day. Their pay is often too low to support a family, particularly in areas with a high cost of living. They deal with hostile and untruthful citizens all day long. Understandably, IRS morale is low.

If an agent doesn't seem to like you for some reason, instead of escalating the war, try to clear the air and relieve the tension. For instance, say, "I'm sorry we can't get along. But let's try to get through this and get it over with, okay?"

If conciliation fails, speak to the agent's manager, whose job is to close cases and smooth things over with taxpayers.

While dishonest employees are a rarity at the IRS, if an IRS employee lies or suggests you give him or her any favors, report the person to the IRS by calling 800-829-1040 or contact the Taxpayer Advocate Service at 877-777-4778. You can also write the IRS at 1111 Constitution Ave., NW Washington, D.C. 20224. You can make your complaint anonymously or sign your name. Either way, don't expect to hear the results of the investigation.

For tips on dealing with a difficult auditor and other audit problems, see Stand Up to the IRS, by attorney Frederick Daily (Nolo).

Can the IRS take my house?

Yes, but the Taxpayers' Bill of Rights discourages the IRS from seizing primary residences (however, your vacation home or rental property is fair game).

IRS collectors, however, cannot act on their own to seize your house. The IRS must obtain a court order, which you can contest. And you can request help to stop the seizure from the Taxpayer Advocate Service.

The IRS doesn't like publicity about taxpayers losing their homes, so a call to the newspaper might help. Typically, the IRS seizes homes only if you have totally failed to communicate or cooperate with the IRS collectors.

For detailed information on protecting your assets from the IRS, see Stand Up to the IRS, by Frederick Daily (Nolo).

Can I make a deal with the IRS to pay less than my tax bill?

Maybe. Start by filing Form 656, an Offer in Compromise. If the IRS accepts your Offer, you can settle your tax debt by paying less than what you owe. In recent years, the IRS has accepted less than 25% of the offers submitted and often not at an amount as low as the taxpayer first offered. For more information, see Nolo's article Using an Offer in Compromise to Settle a Tax Bill.

Can I challenge the IRS if I get audited and don't agree with the result?

You do not have to accept any audit report; you can appeal it by sending a protest letter to the IRS within 30 days after receiving the audit report. If you request an appeals consideration, you will be granted a meeting with an appeals officer who is not part of the IRS division that performed your audit.

If your appeal fails, you can then file a petition in tax court. This is a fairly inexpensive and simple process, if the audit bill is for less than $50,000. If it's for more, you will most likely need the help of a tax attorney.

Generally, it pays to contest an audit report by appealing and going to court. About half the people who challenge their audit report are successful in partially lowering their tax bill.

For more on appealing an IRS audit report, see Nolo's articles Pros and Cons of Appealing an IRS Audit and Tax Court: The Small Case Division.

How likely am I to get charged with criminal tax fraud?

Not very. The chance that any taxpayer will be investigated for tax fraud any time during his or her life is less than 2%. Less than 0.00006% of all taxpayers are investigated in any given year.   And if you are investigated, the likelihood of a civil fine or criminal charge is under 20%. The unofficial minimum amount of taxes owed before the IRS will file criminal fraud charges is over $70,000, in cases involving at least three years of fraud. To some extent, whether you are charged depends on your line of work. Many of those prosecuted for tax fraud work in organized crime or are public figures. For more articles and information, see the Tax Audits section of the Nolo website.

For detailed information on all aspects of IRS audits, see Stand Up to the IRS, by attorney Frederick W. Daily (Nolo).

What are my chances of getting through an audit without owing additional taxes?

Fewer than 25% of audit victims make a clean getaway. The IRS audits half as many taxpayers today as five years ago, but the take per audit has increased. The IRS, thanks to its sophisticated computer selection process, audits only those returns in which adjustments are almost a certainty. Realize the odds are against you and focus on limiting the damage from an audit. For some guidance, see Top Ten Tips for Surviving an Audit.

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