Does a Tax Extension Increase Your Chances of an Audit?

Ryan Thompson
June 30, 2009 — 1,496 views  
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When someone says the words "tax extension" to you, do you automatically think "audit?"

Maybe it's time to think again. No one outside the IRS knows for sure how the audit system really works (our money is on trained hamsters), but many CPAs believe that tax extensions actually decrease your chances of getting an audit.

Why, you ask? Many believe IRS officers have an audit quota, and they start on it around tax time. Many accountants hypothesize that the quotas get filled well before the tax extension deadline of October 15 (September 15 for business taxes), and IRS agents have less incentive to put returns in the audit pile.

There is some discussion as to whether or not this is true, but filing a tax extension certainly won't single you out for unfavorable treatment. Over 10 million (out of 140 million) taxpayers filed tax extensions last year. Half of all US corporations did, too.

Does the IRS Hate My Tax Extension?
It's commonly believed that the IRS typically frowns on audits, and is less likely to treat extended returns favorably. If that were the case, however, why would they offer an automatic six-month extension to anyone who files for it, no questions asked? Besides, by filing for an extension you are actually demonstrating compliance with IRS regulations. Think of all the people who just file late, without notifying the IRS at all!

In addition, it's pretty likely that IRS agents, just like you and your accountant, wouldn't mind fewer tax returns in March and April. Both accountants and agents get overwhelmed during tax season, and the chance of human error (which can trigger an audit) goes way up. There's no reason not to give everyone a bit of a break and file for a tax extension this year.

It's easier than ever to file a federal income tax extension online.

About the Author

The author, Ryan Thompson, is the Founder and CEO of FileLater. FileLater provides a secure online solution for individuals and businesses seeking to e-file an IRS income tax extension. FileLater is an authorized IRS e-file provider and files both IRS 4868 and IRS 7004 forms electronically.

Ryan Thompson