An IRS audit is an examination of your tax return to verify that income, deductions, and credits are reported accurately. While audits can be stressful, understanding the process helps taxpayers respond effectively.
Types of Audits
Correspondence audit — the most common; the IRS sends a letter requesting documentation for specific items (conducted entirely by mail)
Office audit — you are asked to bring records to a local IRS office for review
Field audit — an IRS agent visits your home, business, or accountant's office to examine records
What Triggers an Audit?
Common triggers include:
High income — audit rates increase significantly at higher income levels
Discrepancies — information on your return does not match W-2s, 1099s, or other documents the IRS receives
Unusually large deductions — deductions that are disproportionate to reported income
Self-employment income — higher scrutiny due to the potential for underreporting
Random selection — the IRS selects some returns randomly
Related examinations — your return may be selected because a business partner or investor is being audited
Your Rights During an Audit
The Taxpayer Bill of Rights guarantees:
The right to be informed about the process and your options
The right to quality service from the IRS
The right to pay no more than the correct amount of tax
The right to challenge the IRS's position and be heard
The right to appeal IRS decisions
The right to representation by an attorney, CPA, or enrolled agent
The right to privacy and confidentiality
Responding to an Audit
Stay organized — gather all relevant records and documentation
Be responsive — meet deadlines for submitting information
Be honest — never provide false or misleading information
Seek representation — consider hiring a tax professional, especially for complex audits
Know your limits — you only need to provide what is requested
Disputing IRS Decisions
If you disagree with audit results:
1. Informal conference with the auditor's supervisor
2. IRS Appeals Office — an independent office within the IRS that resolves disputes; settles the majority of cases
3. U.S. Tax Court — file a petition before paying the disputed tax
4. Federal District Court or Court of Federal Claims — pay the tax first, then sue for a refund
Statute of Limitations
The IRS generally has three years from the filing date to audit a return. This extends to six years if income is underreported by more than 25%, and there is no limit for fraud or failure to file.