The IRS has three years to file an audit, and financial cutbacks have not eliminated the possibility that a taxpayer can face an audit. Generally speaking, one doesn't know if the audit is random or the result of a red flag, such as a particular deduction or an income mismatch. When involved in a case, Rob Wood, a tax attorney in San Francisco, California with Wood, LLP, always asks the auditor what it was that caused the audit.
There are things that people can do, such as 1099 matching and eliminating math errors, to avoid audits. But a lot of it is unknown, says Wood. Wood notes that the three-year statute is only a "normal” rule, but there are all sorts of exceptions, including failure to file a return, which gives the IRS an unlimited audit period. He recommends that you should see a professional for advice any time you get a tax notice. There are defenses to audits that an ordinary taxpayer, such as the statute of limitations, might not know about.
For more information on the article Wood has written in Forbes magazine on this, click here. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.