Complete Guide to IRS Audits

Types of IRS Audits

The IRS conducts several types of audits, varying in complexity and intrusiveness.

Correspondence Audit (Mail Audit)

The most common and least invasive type. The IRS sends a letter requesting:

• Documentation for specific items
• Explanation of certain deductions
• Verification of income or credits

Office Audit

You are asked to bring records to an IRS office. Typically focuses on:

• More complex issues than mail audits
• Multiple items or tax years
• Cases requiring in-person review

Field Audit

An IRS agent comes to your home or business. Reserved for:

• Large and complex returns
• Business audits
• High-income taxpayers
• Suspected fraud

Why Returns Get Selected

• Random selection - Statistical sampling
• Document matching - Discrepancies between reported and third-party info (W-2s, 1099s)
• Related examinations - Your return relates to audited business partners
• High deductions - Unusually large deductions relative to income
• Triggers - Certain items that frequently involve errors

How to Respond to an Audit Notice

Receiving an audit notice can be stressful, but knowing how to respond is crucial.

First Steps

1. Don't panic - Audits don't always result in additional taxes
2. Read carefully - Understand exactly what the IRS is asking for
3. Note deadlines - You typically have 30 days to respond
4. Gather documents - Collect everything that supports your return
5. Consider representation - A tax attorney can communicate with the IRS on your behalf

Your Rights During an Audit

• Right to representation by a tax professional
• Right to know why the IRS is asking for information
• Right to appeal disagreements
• Right to privacy and confidentiality
• Right to a fair and just tax system

What the IRS Can Request

• Bank statements and canceled checks
• Receipts for deductions claimed
• Business records
• Asset records
• Proof of income

What to Avoid

• Don't ignore the notice
• Don't provide more information than requested
• Don't lie or provide false documents
• Don't be hostile to the auditor
• Don't go alone if you're unsure of your rights

Possible Audit Outcomes

An audit can result in one of several outcomes.

No Change

The IRS accepts your return as filed. You owe nothing additional.

Agreed Changes

You agree with the IRS findings. You'll receive a bill for:

• Additional tax owed
• Interest (from original due date)
• Possibly penalties

Disagreed/Appeal

You disagree with the findings and can:

1. Request a conference with the auditor's supervisor
2. File an administrative appeal
3. Take the matter to Tax Court

Payment Options If You Owe

• Pay in full immediately
• Installment agreement (payment plan)
• Offer in Compromise (settle for less)
• Currently Not Collectible status (if unable to pay)

Statute of Limitations

Generally, the IRS has 3 years to audit your return, but:

• 6 years if you underreport income by 25%+
• No limit if fraud is suspected or you didn't file