The IRS audited my husband’s 2021 tax return and, yes, he made some mistakes. Now it wants two years to look at his 2022 tax return. Is this normal?

The IRS is tight-lipped on all the red-flags that its audit algorithms will snag, said Villa. But in his experience representing taxpayers under audit, he’s not surprised to hear you mention the auditor’s notice of the year-over-year revenue increase.

That’s because he’s found that big year-over-year swings in major money categories like reported revenue, deductions and expenses can give the taxman pause, he said. “That is something that can raise eyebrows,” according to Villa.

So it’s not surprising the IRS wants to look at the 2022 return. Since passage of the 2022 Inflation Reduction Act, the IRS has been increasing its tax compliance focus on businesses and rich taxpayers. The focus translates into more willingness to dig beyond the initial scope of an audit.

Timelines and tactics

Once a return is filed, the IRS generally has three years to decide whether to assess more tax, Villa said. Of course, there are exceptions and situations that can lengthen the IRS look-back window, he noted.

It’s been taking auditors less time to complete many audits in recent years, statistics show.

Consider the huge band of tax returns with total positive income between $50,000 and $10 million. Numbers from an IRS watchdog say it took auditors 295 days to wrap up their examinations in fiscal year 2023. That’s down from a 385-day average in fiscal year 2021, according to the IRS National Taxpayer Advocate.

Taxpayers agreed to IRS adjustments roughly 40% of the time. In 13% of these cases, the scrutiny ended in no change to the tax bill. The majority of these are “correspondence audits,” meaning they are carried out with phone calls and letters instead of “field audits” that include in-person interactions.

The three-year timeline is not ironclad and the IRS can ask the taxpayer for more time.

But things are not always what they seem. While the IRS often asks taxpayers for an extension, its reasons can vary, said Rochelle Hodes, a principal at the accounting and advisory firm Crowe LLP.

Some requests “are fairly innocuous,” like a revenue agent asking for more time because the person now has training assignments to juggle, Hodes said.

Other extension requests could be loaded. Auditors could be asking for more time because they are waiting on a specialist to dig into a different part of the return, she said.

“A professional representative will know how to interact with the agent and evaluate the situation,” Hodes said.

There was still plenty of time on the clock with the 2022 return, so the request could be “premature,” Villa said. But it’s difficult to say for sure without knowing more about the specifics, he added.

The IRS ultimately decides

If the taxpayer agrees to two extra years, that doesn’t mean the IRS will need the full extension. But consenting to the extension can be fraught too, he said. There are ways to extend the time while limiting where the IRS looks next, said Villa. Still, the IRS ultimately decides the scope, he noted.

Taxpayers can reject an extension request, Villa said. But that could hasten the arrival of a “notice of deficiency.” It’s the IRS formally saying how much extra you owe, he explained.

When this document arrives, it can start the clock on your next move, Villa explained. The range of avenues have their upsides and drawbacks.

One route is a challenge inside the IRS at its Independent Office of Appeals. Or, there’s a pivot to federal courts. In Tax Court taxpayers don’t have to pay the extra tax before they fight the case.

Through the U.S. District Court or the United States Court of Claims, however, taxpayers have to pay first and then litigate to get the money back.

These venues have their own procedures, deadlines and exceptions. For example, a person going to Tax Court must file a challenge to their notice of deficiency within 90 days. (“The tax laws are very strict on filing dates and often do not allow extra time for filing a petition,” according to this U.S. Tax Court explainer on the process of starting a case.)

So giving the IRS less time might turn into less time to weigh your own next move.

“There’s no perfect answer,” Villa said.

The IRS is working on a tax bill with the pending audit. It’s also operating with a taxpayer bill of rights,which says people have “the right to pay no more than the correct amount of tax.”

Is more time the best way to uphold your rights here? That’s beyond me, but getting a perspective from your own tax professional would be money well spent.