East Bay Business Daily

How many years of income does a normal tax audit span?

Do they normally just audit one year or several years for a more complete picture?

Public Comments

1. It generally starts with one area of one year's return, and usually is resolved at that level. But if something looks funny, it can expand to other areas and to other years.
2. It depends on what the first audit shows. A w-2 employee often only gets one year and a cursory glance at the previous 2 years. A self-employed person can get looked at for all 3 and then if there is 25% of unreported income issues the last 6. If the IRS detects fraud, they can go back forever.
3. The normal audit focuses on a single item or area on your return, such as itemized deductions or maybe just charitable donations.
4. an audit can only go back for three years from the year in question. however, if you failed to filefor any year, and that particular year is in question, there is no statue of limitations in effect. once you file, or the irs files for you, you can only be audited within three years of filing that return. most audits are conducted because you, the taxpayer fell outside of a guideline used for determining possible fraud. lets say you make 50k a year, and your deductions, or charitable contributions equal nearly 20-25% of your earnings, it will send up a flag, and while it doesn't neccessarily mean that you have committed fraud, the possibility is there and the irs will conduct a review of previous returns to correlate your current with your previous filing status, if nothing is irregular from year to year, then most likely the return will be accepted as is, and no further audit will be conducted. i had won a considerable sum of money in 2003, and taxes were withheld at 40% but i was also able to claim almost an additional 50% as a loss or deduction. the Irs didn't like it and conducted an audit in sept of 2007, which was past their own deadline for an audit, but created a terrible nightmare of paperwork, and legal fees for me that i really couldn't handle at the time. needless to say, i will never be lax in my tax duties again, and will make sure that everything is covered before mailing my return.