IRS Tax Audit
For the most part, people get nervous about an IRS audit because of several misconceptions. One prevalent misconception is the time limit that the IRS is allowed to audit you. In general, your tax returns can only get audited up to three years after it was filed, or when the tax return was due, whichever came later.
However, the IRS typically audits tax returns two years or more after the filing before they audit, giving them only one year to audit a return and claim a deficiency in the filing. When this happens, the IRS typically asks for an extension by having the taxpayer sign a written consent to extend the time limit.
On the surface, it may look like you can refuse a request for an extension, but in reality, the time delay rarely works in the taxpayer's favor. If you refuse an extension, the IRS will typically decide the audit in their favor. This will force you to appeal or go to court.
So, what do you do when you are presented with a request for an extension by the IRS? There are actually two things you can do. One is to agree to the extension but limit the time to one year or less. Second is to agree to the extension on the condition that extension will only pertain to specific issues. Say, for example, the IRS is auditing your house, you can agree to an extension only for the house. The advantage to the latter type of extension is that if the IRS discovers something after the normal statute of limits, the IRS cannot assess your tax return.