Like everyone else, the IRS has deadlines. If you file a tax return with potential problems, federal law requires the IRS to bring an audit within a certain time frame. The IRS can only extend the time frame for specific reasons, including if the taxpayer consents to the extension. As counter-intuitive as it may seem to help out the IRS, there may be good reasons to give the IRS your consent for an extension. Continue reading for a discussion of when giving the IRS an extension on your audit might actually work in your favor, and contact a dedicated Texas IRS audit attorney with any questions or for help with an IRS tax problem in Dallas or Tyler, Texas.
The audit deadline
Pursuant to the assessment statute, the IRS generally has three years from the later of either the date the return was due or the date the return was actually filed to bring an audit. If the IRS audits a tax return and determines that there is an additional tax liability, they generally must process the tax assessment within the same time period. In order to extend this time period, the IRS generally must get your consent.
Should you give the IRS more time?
It may seem counterintuitive, but there are good reasons to grant the IRS its requested extension. First of all, if you say no, the IRS will almost certainly issue a notice assessing extra taxes. They are likely mid-way through your review and, if you force their hand, they will resolve remaining ambiguities in favor of a higher assessment. By agreeing to an extension, you may be able to limit the scope of the extension to certain issues, or give them a specified time limit (such as an additional year).
Secondly, you might have been caught by surprise that you were being audited at all. Granting the extension gives you more time to hire a tax adviser and/or an audit representation attorney to help you through the audit process and limit your additional tax liability. By refusing the IRS an extension, the IRS will likely stop the process and issue a notice of deficiency immediately, limiting your time to go through the normal appeals process and petition a tax court. Additionally, you may find that there are additional audit issues that are actually in your favor and which may offset a proposed tax assessment or even lead to an overdue refund.
If you are able to get all of the information into the record that supports your tax claims, then you may be better off not agreeing to extend the time limit. Particularly if you are a larger tax payer and the audit is very complex, you may benefit from limiting the IRS’s time to review your return. As noted, the IRS will likely file a notice of deficiency, with a larger tax assessment, forcing you to file a petition in the tax court to fight the assessment. You may be able to argue that the IRS’s case was not fully developed, and you may prevent the IRS from discovering additional issues. Some taxpayers may prefer to avoid the publicity associated with a public tax case or the financial impact the delinquency notice may have until it is resolved.
Regardless, if you plan to keep the IRS to its three-year deadline, it is good to notify the IRS of as much at the beginning of the audit. This will help avoid angering the IRS further and causing them to issue an inflated assessment. A seasoned tax audit representation attorney can help you determine the right course of action during your audit.
If you’re facing a complicated tax issue involving back taxes or allegations of tax fraud, tax evasion, or false returns, get skilled legal help with your case from the Texas tax lawyers at the Scammahorn Law Firm, PC at 903-595-1000, with offices in Dallas and Tyler.