If the IRS notifies you of an audit, and you expected a tax return, you probably have a lot of questions. Will you ever get your tax refund? Does the audit automatically stop it? The answer depends on the IRS’s review and whether the items under audit affect the refund total. Some situations follow normal refund schedules while the IRS delays others until the audit resolves.
A financial advisor who specializes in tax planning can help review your situation, explain how the audit may affect your refund and discuss options for responding to the IRS.
What Is an IRS Audit?
When the IRS audits someone, it reviews their tax return to verify the accuracy of the reported income, deductions, and credits. The IRS triggers audits randomly or based on discrepancies flagged by its systems. Selection does not necessarily mean wrongdoing.
Common reasons for audits include mismatched income reports, unusually large deductions, or claims for refundable credits. The IRS may also flag returns that differ significantly from statistical norms. In many cases, audits are routine verification processes.
There are three primary types of IRS audits:
- Correspondence audits occur by mail and typically request documentation.
- Office audits require an in-person meeting at an IRS office.
- Field audits are more extensive and take place at a taxpayer’s home or business.
Do You Get Your Tax Refund If You Get Audited?
In general, audits do not nullify tax refunds. If the IRS determines the refund is unrelated to items under audit it will issue the refund. For example, the IRS may release your refund if it needs to review your taxable income, but your refund comes from your withholdings. In these cases, the audit and refund processing move on separate tracks.
However, the IRS may hold or freeze a refund if the audit involves credits, deductions or income directly tied to the refund amount. 1 When this happens, the refund is typically delayed until the IRS completes its review. This happens often when the audit involves refundable credits.
Credits such as the Earned Income Tax Credit can generate refunds even when no tax is owed, making them a common focus of review. For these, the IRA may withhold the refund until it confirms your eligibility.
Missing documentation can also slow the process. If the IRS requests proof of income, dependents, or expenses because of incomplete records then the audit may remain open longer. This means the IRS holds your refund until it resolves. Suspected errors or discrepancies on the return may also cause delays. If the IRS disputes the refund amount it will pause payment until it confirms, and adjusts, the total owed to you.
Types of Refunds Most Likely to Be Affected By an Audit
The refunds most often delayed by audits involve the Earned Income Tax Credit. Because the EITC is refundable and income-based, the IRS frequently reviews eligibility. It often withholds refunds tied to this credit until the audit concludes.
The Child Tax Credit and Additional Child Tax Credit also affect refunds during audits. These credits depend on dependent status, income thresholds and residency requirements. Audits may focus on verifying qualifying children, delaying refunds in the process.
Large deductions or business losses can also trigger refund delays. When significant deductions drive a refund the IRS may review the legitimacy of those claims.
How Long Can an IRS Audit Delay a Refund?
Audit timelines vary depending on the type and complexity of the review. Correspondence audits may resolve in a few months if responses are prompt. Office and field audits can take significantly longer.
Factors that affect audit length include how quickly you respond, the completeness of documentation, and the IRS’s workload. Back-and-forth correspondence can extend the process. If the IRS makes multiple requests for additional information then expect longer delays.
After an audit concludes and the IRS finalizes its determination, it issues your refund. If the IRS makes no changes to your filing then it will likely release the scheduled refund. If adjustments occur, expect a revised refund amount that reflects those changes.
What Happens If the IRS Changes Your Refund Amount
The IRS may reduce or eliminate your refund if it determines that you owe additional taxes. In some cases, the IRS applies the refund toward this tax liability. This outcome is common when deductions or credits are disallowed.
The IRS may also offset refunds against penalties or interest assessed during the audit. Even if you were expecting a refund, these amounts can reduce what you ultimately receive.
In some scenarios, taxpayers may owe money instead of receiving a refund. This can happen if the IRS determines the original return overstated credits or understated income.
Steps You Can Take to Help Release a Refund During an Audit
Responding promptly to IRS notices is one of the most effective ways to keep an audit moving. Deadlines are strict, and missed responses can extend reviews. Timely communication may help resolve refund-related issues faster.
Providing complete and accurate documentation is equally important. Submitting partial or unclear records may lead to additional requests. Clear documentation can help the IRS verify claims tied to your refund.
Avoiding common tax mistakes can also prevent unnecessary delays. These include sending incorrect forms, ignoring notices or failing to keep copies. Taking these steps may improve the chances that you get your tax refund if you get audited.
How an IRS Audit Affects Future Tax Refunds
An audit does not automatically affect future refunds, but it may increase scrutiny in later tax years. Returns with similar issues may be reviewed more closely. This can influence processing times going forward.
If the IRS changes your filing during an audit, future filings may need to reflect those adjustments. This includes corrected income reporting or revised credit eligibility. Accurate recordkeeping becomes more important after an audit.
Maintaining organized records can help reduce future delays. Keeping documentation for income, deductions, and credits supports smoother filings. This can help clarify whether you get your tax refund if you get audited again.
When to Get Professional Help During an IRS Audit
Professional help may be especially useful when audits involve large refunds or complex returns. Audits involving self-employment income, multiple credits or business deductions often require detailed explanations. These situations increase the risk of refund delays or adjustments.
Coordination between tax professionals and financial advisors can also be beneficial. While tax professionals focus on audit responses, advisors help evaluate the broader financial impact.
Bottom Line
Getting audited does not automatically mean you lose your tax refund. In many cases, you can still receive it, but the timing and amount depend on what the IRS is reviewing and whether the audit involves items that affect your refund. Audits can result in no change, a delay, an adjustment or, in some cases, the loss of a refund. Factors such as refundable credits, documentation and the scope of the audit all play a role. A financial advisor or tax professional can help review your situation and explain how an audit may affect your refund.
Tax Planning Tips
- If you’re unsure how much you’ll owe in taxes, a financial advisor can help you calculate your liability and avoid costly mistakes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.
Photo credit: ©iStock.com/phakphum patjangkata, ©iStock.com/alfexe, ©iStock.com/Ridofranz
Read the full article here
