There is no way to determine how long it will take the IRS to decide whether to audit your federal income tax return. However, the IRS has a limited amount of time to make this decision. When the time limit expires, you can rest assured that the IRS will not be conducting an audit. However, different time limitations may apply to your return depending on its specific circumstances.
Audit Time Limitation
Most taxpayers who file a complete and accurate tax return before the filing deadline can be audited by the IRS within three years of the filing deadline. For example, even if you file your tax return before the April 15 deadline, the three-year period doesn’t begin until April 15. The IRS can choose your return for audit at any time during this period. Therefore, it’s important that you retain a copy of the tax return and any documentation that supports everything you report on it for at least three years. The IRS expects you to hold onto proof during this period. If it does conduct an audit and you have no documentation, the IRS may assess additional tax if not convinced about the accuracy of your return.
Gross Income Exception
If you ever file a tax return that incorrectly omits income that is equal to 25 percent or more of the amount you actually report, the IRS then has six years to conduct an audit of your return. For example, if you report $100,000 of employment earnings in gross income on your tax return, but fail to report $25,000 of income you earn as an independent contractor, your return is subject to the six-year limitation period since you omitted 25 percent.
Fraudulent Tax Return
Filing a fraudulent tax return with the IRS makes it impossible to estimate if and when your tax return will be chosen for an audit. Fraudulent returns are not subject to any statute of limitations, allowing the IRS to audit the tax return at any time. Fraudulent returns commonly include fictitious deductions or intentional omissions of taxable income, all with the goal of evading income taxes. However, if you make a mistake on your return or claim a deduction that you are not eligible for, the IRS will not treat it as fraudulent unless you report it with full knowledge it is inaccurate.
Penalties & Interest
The IRS reports that it audits less than 2 percent of all tax returns. In the unlikely event you are chosen for an audit and the IRS increases the amount of tax you owe, you may be responsible for interest and penalties on that amount. For example, if the increase in tax is due to a negligent mistake you make, then the IRS will charge you 5 percent of the underpayment as a penalty. In addition, interest accrues on both the penalty and the underpayment as of the first day after the return’s initial filing deadline.
Jeff Franco's professional writing career began in 2010. With expertise in federal taxation, law and accounting, he has published articles in various online publications. Franco holds a Master of Business Administration in accounting and a Master of Science in taxation from Fordham University. He also holds a Juris Doctor from Brooklyn Law School.