According to reports, the Internal Revenue service has announced that the amount of tax audits it normally conducts will be greatly reduced for the 2016 tax year due to the low number of IRS workers and budget cuts. In fact, the chances a taxpayer will be audited has dropped to less than one percent, which is less than one for every 100 taxpayers. While most Georgia taxpayers will consider this good news, some taxpayers may use the occasion to take advantage of the system. This means that the IRS must still conduct audits, so it is a good idea for every taxpayer to be prepared just in case they are among the small number of taxpayers to be audited.
To prepare for a tax audit, which is performed either through the mail or in person, taxpayers should keep receipts, documentation and log books relating to their tax returns for at least three years. However, the IRS will ask for six years of documentation from taxpayers who omit more than a fourth of their income or who omitted foreign income of more than $5,000, such as interest from a foreign bank account. In regards to taxpayers who fail to pay their taxes or who commit a fraud or another criminal violation, the agency can go back as far as it wishes. Sometimes, the IRS will also do this to taxpayers who filed their taxes but missed filing one or two tax forms.
Therefore, it is a good idea for taxpayers to save a copy of each year's tax returns, no matter how far back they go. Although IRS tax audits are low, the audits are still occurring.
During a IRS tax audit, IRS agents typically try to uncover an error on the part of the taxpayer, including honest mistakes. For this reason, taxpayers facing an IRS audit might want to contact an experienced tax attorney for guidance. Source: Forbes, "How Low IRS Audit Rate Could Actually Hurt You", Robert W. Wood, March 8, 2017