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While the thought of granting the IRS more time to audit you may initially seem counterintuitive or risky, it can actually be a strategic move. The IRS might request an extension, indicating they need more time to complete the audit. Your first instinct might be to reject the idea of saying no to the IRS. Even a routine tax audit can be financially and emotionally taxing. So, if the IRS statute of limitations has expired or is about to, it may seem tempting to try to evade the IRS on this basis. It would be a relief to inform the IRS it is too late and they don´t have time to send you a tax bill.

However, it´s crucial to fully comprehend what you´re up against in an audit and how it can escalate into a dispute with the IRS. Generally, the IRS has three years to conduct an audit, starting from the due date of the return or the date it was filed, whichever is later. But this three-year period doubles if you omit 25% or more of your income. Even worse, there´s no time limit for the IRS if you never filed a return. These are some of the rules about the IRS´s statute of limitations that everyone should be well-versed in.

You should assume that if the IRS asks you to extend the statute of limitations, they closely monitor you. The IRS is already auditing you or planning to do so. Therefore, most people agree that the IRS should give them more time to conduct the audit.

Why would anyone do that? Here´s how it works. The IRS contacts you (usually about two and a half years after filing) and asks you to extend the statute of limitations. Most tax advisors say that you should generally agree. If you say "no" or ignore the request, the IRS will assess additional taxes, usually based on an incomplete and somewhat unfavorable picture. Delaying and not giving a definitive answer might cause the IRS to forget about you. However, the IRS is very diligent about this.

The IRS rarely fails to issue a Notice of Deficiency, and you´ll generally be in a worse position than if you had agreed to the extension. There are exceptions to this rule, but they are relatively few. It´s wise to get a professional to help you weigh the facts. Generally, not giving the IRS more time will make your case more challenging and the outcome less favorable. It may not make sense, but it´s often true.

Of course, all taxpayers worry about the risk of an IRS audit. But if you´re already under audit and the IRS needs more time, it´s in your best interest to grant it. Sometimes, you can negotiate the IRS´s request, for example, by limiting the issues or trying to restrict the additional time requested by the IRS. However, this can be a delicate dance, and the IRS can be strict about the requested extension. For more information on this topic, please call us at 909-590-9307.