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Last Updated: 12/27/2013

Individual Income Tax Audits

The Minnesota Department of Revenue audits tax returns to make sure they’re accurate. When the department receives your return, we process it, review it and make corrections if necessary. After processing your return, we still may audit it at a later date.
 

Why is my return being audited?

We typically audit tax returns based on information from the Internal Revenue Service or our own internal review, as outlined below:
  • The IRS forwards information about federal tax returns to the department about two years after the returns are filed (as provided for under Section 6103[d] of the Internal Revenue Code). This includes processing adjustments (corrections) or audits done by the IRS. We may adjust or audit your state tax return based on this information.
  • The department also compares available data (such as income information from employers) to the information on your return. We may adjust or audit previously filed returns if we find any errors, discrepancies or other problems.

Is there a time limit to adjust my return?

The department may audit your return up to 3½ years after it is due or filed (whichever is later). This time limit can be extended if you:
  • Amend a return or the IRS adjusts your federal return.
  • Sign an agreement with the IRS to extend the time to adjust your federal return.
  • Sign an agreement with the department to extend the time to adjust your state return.
  • Fail to report 25 percent or more of your gross income on your return.
  • Intentionally understate your tax liability or fraudulently file your return.
There is no time limit for audits if you have not filed a return.
 

What happens when I get audited?

If we find discrepancies in your tax return, we’ll recalculate the return using the corrected data. If you owe more tax because of our changes, we’ll send you a “tax order” (bill) for the amount you owe, plus any interest that has accrued since the due date of your return. View the statute, M.S. 270C.40.
 
We might also charge you a 10 percent penalty if we find that you were negligent or deliberately disregarded tax regulations. There could be another 10 percent penalty if you didn’t file an amended Minnesota return to report a change the IRS made to your federal return.  You must file your amended return within 180 days of receiving a federal audit.  View the statute, M.S. 289A.60, subd.5.
 

What do I have to do if I’ve been selected for an audit?

At first, probably nothing. The auditor assigned to your case will likely contact you for more information. You might have to set up an appointment with the auditor.
 

What if an auditor doesn’t contact me?

That usually means that there are only minor problems or errors on your return. An auditor might not need to contact you for those. Some common examples of minor taxpayer errors include:
  • Forgetting to include some types of income on your return.
  • Claiming tax credits that you don’t qualify for.
  • Forgetting to include all nontaxable household income on your Homestead Credit Refund (for Homeowners) and Renter Property Tax Refund  return (Form M1PR) — such as Social Security, welfare or disability payments.

What information do I need for an audit?

We may examine your income, deductions, credits and any other information we feel is necessary to review. Among the documents we might need are receipts, cancelled checks, 1099 forms and other books, papers or records that we need to complete the audit.
 

What if I refuse to provide you the information requested?

You can refuse to provide the documents we request. However, your refusal won’t stop the audit, and could result in you having to pay more taxes. Although the information you provide is confidential, we can share it with the IRS or other state agencies as provided by law.
 

What happens after an audit?

We’ll provide you with clear and concise explanations of all adjustments made to your tax return and amount due. If you think the adjustments are incorrect or that we didn’t consider all the relevant information, contact us.
 

What if I agree with the audit?

If you agree with the audit, you must pay any tax, penalty and interest that are due within 60 days of our notice. If you can’t pay in full, you may request a payment agreement from our Collection Division. If you don’t either pay what you owe or set up a payment agreement, we may add a late payment penalty and additional interest to your tax liability.
 
If the audit shows you overpaid your taxes, you’ll receive a refund. (Your refund may be reduced if you owe other Minnesota taxes, payments to other state or county agencies, felony criminal fines or delinquent child support payments.)
 

What are my rights?

You may have an attorney, accountant or other person represent you during the audit process. If you disagree with the audit, you may appeal our findings to either the Department of Revenue or Minnesota Tax Court. You must file your appeal within 60 days of our report. You can also request an independent review of your tax situation by the department’s Taxpayer Rights Advocate.
 
 

What if I made the same mistake on my tax returns for other years?

If you decide our audit is accurate, you should review tax returns filed for other tax years to check if there are similar errors on those returns. If you find more errors, you must file amended returns for those years.