Does Extension Decrease your Risk of Audit?

Tax season has just begun and the early birds have already begun filing their tax returns. We all know the deadline is April 15 each year while the extension deadline is October 15 (a six month deferral). In the past, the extension deadline used to be August 15 (a four month extension to the deadline) with two more months after that if you had a good reason. Then the IRS dropped the reason requirement and the two-step process. Now you get an automatic six months deferral.

Usually, people ask for an extension to the filing deadline if they need time to consider proper reporting, get professional advice or file an accurate return. It is important to get it right the first time because amended returns are more likely to be scrutinized and may increase the risk of an audit.

Some people believe if you file closer to the deadline (both normal and extended) the risk of being chosen for audit is less because there will usually be a huge number of returns coming in at the last minute and yours will more easily slip under the radar. Is that true? Of course the IRS would never admit such a thing (if it exists in the first place). And no one can truly tell.

I personally believe filing at the last minute does not decrease your chances of an audit. This is simply because all tax returns are vetted through by the IRS computers first (not manually) and only when a red flag is triggered then a pair of human eyeballs sees your return. Thus whether the computers vet through 100 or 1,000,000 returns, it’s not going to make any significant difference.

So if you do need more time to file your tax returns, you should request an extension. But do not think it affects your chances of an audit one way or the other. Requesting an extension involves mailing in a Form 4868. You could ask your return preparer to do it, do it with TurboTax or other commercial software, or do it electronically yourself. Just go to www.IRS.gov and look for the Application for Automatic Extension of Time To File US Individual link. For more IRS help on this matter, see IRS Tax Topic 304 Extensions of Time to File Your Tax Return.

One crucial thing to remember is that any extension given by the IRS is an extension to file, not to pay. So be sure you pay on time, then file later when given the extension.

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