It is a glorious event that takes place every year without fail. The month of April rolls around and the drama builds. Then it happens. You file tax returns? No. You file an extension! The folklore surrounding the act of filing an extension is extensive, but does it really impact your risk of being audited by the IRS? Let’s take a look.
As an individual taxpayer, you have the option of filing for an extension to file your tax form each year so long as you do it on or before April 15th. The magic document is Form 4868. It is shocking short and simple to fill out. Even better, the application is granted automatically by the IRS. You get a six month extension to October 15th to get your act together. Most people remember this deadline right around October 14th in the middle of the night, but that is another matter.
The filing of an extension is seen by some as an act that causes a reaction by the IRS. Depending on who you are talking to, this reaction can be good or it can be bad. The “good reaction” crowd believes that filing an extension is a good move because it lowers your risk of an audit. The thinking is the IRS hires extra employees to help it during the tax season around April and then lets them go. With fewer employees around, there is less chance you’ll get audited because there simply isn’t the manpower to do it.
The “bad reaction” crowd looks at the extension differently. They believe the filing of extensions, particularly when done year after year is indicates to the IRS that you are up to something. This, in turn, puts you on either a watch list or sends you straight to an audit. Either result is, of course, bad. Continue reading ‘Does Filing an Extension Change Your Risk of Being Audited?’ »