How to Know if the IRS Is Auditing You and What to Look For

Getting audited by the IRS can be stressful, but most taxpayers will never experience it. The agency selects a small percentage of returns for review based on discrepancies, random selection, or specific triggers like unusually high deductions. While an audit doesn’t always mean you owe more taxes, it does require providing documentation to support your return.

Understanding how audits work and recognizing early signs can help you respond appropriately if the IRS contacts you.

IRS Notices That Indicate an Audit

The IRS initiates audits through formal notices sent by mail. A clear indication is a Letter 2205-A or 2205-B, which states that a tax return is under examination. These letters specify the tax year in question and whether the audit will be conducted by mail or in person. If the IRS requests an in-person meeting at a local office or your home, it typically signals a more detailed review.

Letter 566 is used for correspondence audits, which are conducted entirely by mail and usually focus on specific areas of a return, such as deductions or income discrepancies. The letter lists the documents needed to verify reported amounts. If the requested information is not provided by the deadline, the IRS may adjust the return and issue a bill for additional taxes.

A CP2000 notice is not technically an audit but often leads to one if discrepancies remain unresolved. This notice is sent when the IRS’s records—such as W-2s or 1099s—do not match what was reported on the tax return. If the taxpayer disputes the proposed changes and provides insufficient evidence, the IRS may escalate the matter to a full audit.

Differences Between an Audit and a Routine Inquiry

Not every letter from the IRS signals an audit. In many cases, the agency simply needs clarification or additional details about a specific item on a tax return. A routine inquiry is generally limited in scope and does not imply wrongdoing. These requests often come in the form of CP series notices, such as CP05, which indicates the IRS is reviewing income, credits, or withholdings before processing a refund. These inquiries typically resolve quickly once the requested information is provided.

An audit involves a deeper review of financial records and can examine multiple aspects of a return. The IRS may request bank statements, receipts, contracts, or other supporting documents to verify reported income, deductions, or credits. Audits can be conducted through correspondence, at an IRS office, or in the field. Field audits, which take place at a taxpayer’s home or business, often involve a broader examination of financial activity, including cash transactions and asset valuations.

The consequences of an audit can be more significant than a routine inquiry. If discrepancies are found, the IRS may assess additional taxes, interest, and penalties. Underpayment penalties can be calculated at 0.5% of the unpaid tax per month, up to 25%. Routine inquiries rarely result in financial adjustments unless the taxpayer fails to respond or provides inaccurate information.

Myths About Using Refund Status to Check for Audits

Many taxpayers mistakenly believe that checking their refund status can indicate an audit. The IRS’s “Where’s My Refund?” tool only tracks the processing status of a return, including when it has been received, approved, and sent for payment. It does not reveal whether a return has been flagged for review. Even if a refund is delayed, this does not necessarily indicate an audit—processing delays can result from identity verification, system backlogs, or errors in tax return entries.

Some assume that if a refund is issued promptly, their return has been cleared of audit risk. However, the IRS can audit a return even after issuing a refund. The agency generally has up to three years from the filing date to initiate an audit. In cases involving substantial underreporting of income—defined as omitting more than 25% of reported income—this period extends to six years. A taxpayer could receive a refund and still be audited months or even years later.

There is also a belief that tax returns flagged for manual review automatically lead to an audit, but the IRS often conducts additional checks without escalating to a full examination. Returns claiming refundable credits like the Earned Income Tax Credit or the Additional Child Tax Credit may undergo extra scrutiny due to fraud prevention measures. These reviews can delay refunds but do not necessarily result in an audit unless discrepancies are found.

Possible Records Requested During an Audit

The documentation required during an audit depends on the specific issues under review. If a taxpayer operates a business, the IRS may request financial statements, general ledgers, and bank account records to verify income and expenses. For businesses that accept cash payments, deposit slips and point-of-sale records may be examined to ensure all revenue has been properly reported. The IRS may also compare business expense claims against industry benchmarks to identify unusual patterns.

For individuals, audits often focus on deductions and credits that require substantiation. Taxpayers claiming charitable contributions might need to provide donation receipts that meet legal requirements, including written acknowledgment from the receiving organization for donations exceeding $250. If mortgage interest deductions are under review, Form 1098 from lenders and proof of payment may be necessary. Similarly, for those deducting medical expenses, the IRS may request canceled checks, billing statements, or insurance reimbursement records.

In some instances, auditors may examine lifestyle indicators to assess whether reported income aligns with spending habits. Large asset purchases, such as real estate or luxury vehicles, could prompt requests for loan documents or purchase agreements to verify the source of funds. If discrepancies arise, the IRS may use bank deposit analysis to reconstruct taxable income.