two years for most individuals and small businesses. two years for most medium businesses (see note 2) four years for all other taxpayers (see note 3).
The reason for this is to do with what has been included or excluded in your tax return; for example, attempting to reduce taxes by not correctly including income or incorrectly overclaiming deductions can trigger an ATO Audit.
What happens if you get audited and owe money? If you get audited by the IRS and owe money, you'll be notified of the additional tax that you're required to pay as well as any penalties and interest due. The correspondence that you receive from the IRS will mention a deadline by which you must pay.
Don't worry about dealing with the IRS in person
Most of the time, when the IRS starts a mail audit, the IRS will ask you to explain or verify something simple on your return, such as: Income you didn't report that the IRS knows about (like leaving off Form 1099 income)
Audit Rate
(Source: IRS Data Book, 2020.) Overall, the chance of being audited was 0.6%. This means only one out of every 166 returns was audited—the lowest audit rate since 2002.
If there's one thing American taxpayers fear more than owing money to the IRS, it's being audited. But before you picture a mean, scary IRS agent busting into your home and questioning you till you break, you should know that in reality, most audits aren't actually a big deal.
Fines for misleading statements on your tax return range from $4,440 up to $13,320 for taxpayers who have shown “intentional disregard” by intentionally underpaying tax or over-claiming an entitlement.
There are certain anomalies in a tax return that can 'trigger' a tax audit, but each year the ATO chooses a number of specific areas of focus, and will often conduct random audits on tax returns these show up in.
The system picks up questionable claims from over-calculating deductions, mis-calculating assessable income and claiming entirely false deductions. A series of 20 computer checks are run on every tax return and flags are raised on numbers that don't add up.
For most taxpayers with simple affairs, the tax office can go back two years, while if your tax affairs are more complex they can go back four years.
Here's what happens if you ignore an office audit:
You may have avoided the meeting, but you'll pay for it later in taxes, penalties, and interest. The IRS will change your return, send a 90-day letter, and eventually start collecting on your tax bill. You'll also waive your appeal rights within the IRS.
If you get audited and don't have receipts or additional proofs? Well, the Internal Revenue Service may disallow your deductions for the expenses. This often leads to gross income deductions from the IRS before calculating your tax bracket.
What is the chance of being audited by the IRS? The overall audit rate is extremely low, less than 1% of all tax returns get examined within a year.
IRS audits individuals to verify if they accurately reported their taxes and, if they didn't, to determine if more taxes are owed. Audit trends vary by taxpayer income. In recent years, IRS audited taxpayers with incomes below $25,000 and those with incomes of $500,000 or more at higher-than-average rates.
Fewer than 1% of tax returns with $200,000 or less in income are audited. That percentage grows to 10% and higher for those earning above $1 million. Obviously, you don't want to try to earn less money to avoid an audit! As you'd expect, the higher your income, the more likely you will get attention from the IRS.
How far back can the IRS go to audit my return? Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years.
You got an IRS audit notice.
In this case, you need to respond to the notice with the information and documents the IRS requested. You can't file an amended return to resolve an audit.
A tax audit doesn't automatically mean you're in trouble. While it's true the IRS can audit people when they suspect they have done something wrong, that's often not the case. The IRS audits a portion of the taxpaying public every year. You can be selected purely as a matter of chance.
Why the IRS audits people. The IRS conducts tax audits to minimize the “tax gap,” or the difference between what the IRS is owed and what the IRS actually receives. Sometimes an IRS audit is random, but the IRS often selects taxpayers based on suspicious activity.
If you are being audited, you may not need to answer questions posed by the IRS; however, if you refuse to produce your tax-related documents, you may be forced to do so in court. Information in your documents may be used against you, even if such information is incriminating.