After a back-and-forth correspondence or interview, the IRS will eventually ask you to extend the audit period or send you a closing letter that explains their findings. 

The Request to Extend the Audit Time

There is no set time for an IRS audit to close. Most IRS audits last several months to several years. As noted above, you should ask the auditor about this topic during the opening meeting for the audit. There are several other timing issues you should consider.

The IRS generally has three years to examine your tax return before the statute of limitations applies. This statute of limitations is the deadline for the IRS or you to make changes to your tax return. This deadline starts running from the due date of your tax return or, if you did not file the tax return in a timely manner, from the date the IRS receives the tax return. This deadline can be extended to six years, if your income is understated by at least 25% of the correct amount. The three or six-year deadline does not even start running, if you fail to file a tax return. 

If the three or six-year time period is about to close while the audit is still in progress, the IRS auditor will likely request that you agree to extend the time. The IRS does this by sending you a Form 872, Consent to Extend the Statute of Limitations, to sign. 

Why would you agree to extend the time for the auditor to increase your tax? The consequence of not signing the form is usually the IRS auditor making unfavorable adjustments and closing the case. The auditor will use the information they have to propose adjustments and complete the audit. 

This does not necessarily mean that you have no option other than to sign the form. When the IRS auditor closes the case, you can usually litigate the matter if you choose to do so. Your case will still be forwarded to the IRS Office of Appeals for a possible settlement in most cases. We will cover these topics below. 

You should also know that you can negotiate with the auditor about Form 872. You can request a shorter time to extend the audit. The IRS policy is to have at least one year remaining on the statute at all times. If the audit needs to be closed to the IRS Office of Appeals, the IRS policy says that at least one year needs to be remaining on the statute as the audit is to be closed out and sent to the IRS Office of Appeals. Given these rules, the auditor will typically ask that the audit time be extended for the number of months they think they need to close the case plus one year.

You can also ask to only extend the audit for specific issues. IRS auditors hardly ever agree to this type of request. 

IRS Closing Letters

The IRS will eventually close its audit. The results will be conveyed to you in writing, including a “no change” accepting your tax return as filed or a proposed adjustment to your tax returns. 

No Change Letters

If the IRS is auditing an original tax return you filed, the “no change” letter is favorable, meaning the IRS accepts your tax return as filed and is not proposing additional changes. You do not need to do anything further for the audit in this case.

It may not be a good answer, if the IRS is auditing an amended return you submitted. If you filed an amended return to ask the IRS to refund money to you and that tax return is being audited, a no change is a bad answer as the IRS is not allowing your refund. It accepts your initially filed return and is not making any changes to it, including the changes you wanted on your amended return. You will need to consider whether to appeal this decision. We’ll cover that topic below. 

Proposed Adjustment Letters

The auditor may send you paperwork proposing adjustments. You may receive this paperwork after discussing the case with the auditor and telling the auditor that you agree with the proposed changes. You may also receive this paperwork without first discussing it with the auditor. The auditor may send this paperwork to you to see if you will agree with the proposed changes. The letter will usually include a Form 870, Consent to Proposed Tax Adjustment, which you can sign and return to signify that you agree with the IRS auditor’s proposed adjustments. 

With large case audits, the auditor will send a Notice of Proposed Adjustment (“NOPA”) detailing their proposal. For audits of individual and small businesses, the IRS will usually skip sending the NOPA. Instead, the auditor will usually just send Form 5701, Notice of Proposed Adjustments, and Form 870. The IRS will usually also include a Form 4549 and a Form 886. Collectively, these documents are referred to as the “revenue agent’s report.” 

If you agree with your tax return’s proposed changes, you need to indicate your response on Form 5701 and sign and return Form 870.

If you do not agree with the proposed changes, you can either let the auditor know or do nothing. The auditor will respond by sending a 30-Day Letter. The 30-day Letter instructs you to file a written protest within 30 days of the letter’s date to ask that the case be forwarded to the IRS Office of Appeals. 

If you do not respond to the 30-Day Letter, the IRS will usually send you a 90-Day Letter. The 90-Day Letter is also known as a “statutory notice of deficiency.” This letter instructs you to file a petition with the U.S. Tax Court within 90 days of the date of the letter. 

You can ask the auditor to send you a 30-Day Letter or a 90-Day Letter. The auditor may honor your request. While you will want a 30-Day Letter in most cases, there are instances where you may prefer a 90-Day Letter. This may be the case if you do not want an administrative appeal before going to court or if you know that the appeal will not be useful.

It should also be noted that the IRS does not send a 30-Day Letter or 90-Day Letter in every case. For example, if you filed a refund claim to ask for money back and the IRS is auditing the refund claim, you generally do not have the right to go to the U.S. Tax Court. Therefore, the IRS will not send you a 90-Day Letter.