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Extending your return DECREASES your chances of an audit. Why?

Hi Everyone,

Each year we correspond with late-season filers that are afraid of filing for an extension, although it is completely legal. Even the IRS form itself is titled “Automatic Extension,” automatically giving you an additional 6 months.

Today I will focus on audits.

Filing for an extension DECREASES your chances of audit. But why?

Happy to explain!

  • The IRS assigns a rating known as a “DIF score” to your return.
  • This score is based on the severity of factors that may be indicative of potential underreporting of income.
  • The higher your DIF score, the more likely you will be audited.

This is the crucial part here, so read carefully ❗

  • The IRS starts sending returns to their examination department based on DIF score as soon as the season starts. 
  • However, as the season progresses, they are increasingly inundated with work & start to increase the DIF score threshold for examination.
  • The later you file, the higher the threshold for audit selection. 
  • Therefore, by the end of the October 15th filing season, audit spots are nearly full, so only the most egregious returns would be selected for audit.

For this reason, it is in your favor from an audit perspective to file on an extension basis. This said, of course, your returns must be truthful! 

I take this information for granted as a CPA with years of representation experience, however, I was recently at the gym with a good friend of mine who is a tax attorney and we discussed how these inner IRS workings are a mystery to most. He encouraged me to draft this educational piece today. Please share this email with those that may benefit.

As always, this is not professional guidance unless we are engaged.

If you are interested in further information regarding extensions, please reply back to this email to request our list of:

  • Top 5 extension best practices
  • Top 5 extension myths & truths 

Happy to help with any tax or accounting queries; just contact us below.

Thank you for reading!

—

George Dimov CPA

www.dimovtax.com

(833) 829-1120 toll free