The Simplest Type of IRS Audit: What You Need to Know

An IRS audit can sound intimidating, but not all audits are complex or require extensive back-and-forth with the agency. The simplest type is relatively straightforward and often resolved quickly, especially with the right documentation.

Understanding how this basic audit works can help you respond appropriately and minimize stress.

Key Features of the Basic Audit

This audit is the least invasive, focusing on specific items rather than a full financial review. The IRS typically conducts it by mail, requesting clarification or additional documentation for particular deductions, income sources, or credits. There is no in-person meeting, and the process is usually resolved by submitting the necessary paperwork electronically or by mail.

The IRS often flags discrepancies when reported income does not match third-party data, such as W-2s or 1099s. It may also seek verification for deductions that appear unusually high for a taxpayer’s income level. For example, if someone claims $15,000 in charitable contributions on a $50,000 salary, the IRS may request receipts or acknowledgment letters from the organizations that received the donations.

These audits are typically resolved within a few months if the requested information is provided promptly. Taxpayers generally have 30 days to respond, though extensions may be granted. If the IRS accepts the documentation, no further action is needed. If discrepancies remain, the agency may propose adjustments, which the taxpayer can accept or dispute.

Possible Reasons for This Audit

A basic IRS audit is often triggered when certain figures stand out as unusual. A sharp change in reported income from one year to the next can prompt a review, especially if there’s no clear explanation—such as a job loss or shift to part-time work.

Self-employment income and related deductions also attract scrutiny. Taxpayers with high business expenses relative to earnings may need to substantiate those claims. For instance, a freelance photographer deducting $30,000 in equipment and travel expenses on $60,000 of income might be asked to provide receipts and invoices. The IRS wants to confirm that expenses are legitimate business costs rather than personal expenditures.

Unreported income is another frequent trigger. The IRS receives copies of W-2s, 1099s, and other tax documents from employers, banks, and investment firms. If a taxpayer’s return does not include all reported earnings—such as interest from a savings account or freelance income from a gig platform—the discrepancy can lead to an audit. Even small amounts of unreported income can prompt a review, as the IRS uses automated systems to match reported figures against third-party data.

Notification and Documentation

The IRS initiates this audit by mailing a notice, typically a CP2000 or a 566 Letter, outlining the specific issue under review and what information is needed. Since this process does not involve an in-person meeting, it is generally more manageable for taxpayers. The letter specifies a deadline for response, usually 30 days from the date of issuance, though extensions may be granted if requested in advance.

Proper documentation is key to resolving the audit efficiently. The IRS typically requests records that directly support the figures reported on the return, such as bank statements, invoices, or official tax documents like 1098 forms for mortgage interest. If deductions are under review, receipts and detailed logs may be necessary. For example, taxpayers claiming a home office deduction should be prepared to provide utility bills, lease agreements, or a floor plan showing the percentage of space used exclusively for business purposes.

Electronic submissions have become more common, with the IRS offering secure portals for document uploads in certain cases. If mailing physical copies, it is advisable to send them via certified mail with a return receipt to confirm delivery. Organizing records clearly—such as grouping related documents together and including a cover letter explaining how they support the reported amounts—can help prevent delays. The IRS will review the submitted materials and respond with either an acceptance of the documentation or a request for further clarification.

Potential Changes to Your Filing

If the IRS determines that adjustments are necessary, the most immediate impact will be a recalculation of tax liability. This can result in an increased amount owed, a reduced refund, or, in rare cases, an additional refund if an error in the IRS’s favor is corrected. Adjustments often stem from misreported figures, such as incorrect cost basis calculations for asset sales or improperly claimed refundable credits like the Earned Income Tax Credit. Taxpayers who relied on estimates rather than official records may find that even small discrepancies lead to notable changes when recalculated under IRS scrutiny.

Certain adjustments may also trigger penalties and interest. If underreported income leads to a significant tax shortfall—generally exceeding $5,000 or 10% of the correct liability—the IRS may assess an accuracy-related penalty under Internal Revenue Code 6662, typically 20% of the underpaid amount. Additionally, interest accrues from the original due date of the return until the balance is fully paid, calculated using the federal short-term rate plus 3%. While penalties can sometimes be waived for reasonable cause, interest is rarely removed, making prompt resolution beneficial to minimize additional costs.

When the Audit Concludes

Once the IRS reviews the provided documentation and determines whether adjustments are necessary, the audit process formally ends. The outcome will be communicated through a closing letter outlining the final decision and any next steps required. If the IRS accepts the taxpayer’s records as sufficient, no further action is needed. If adjustments are made, the letter will specify the revised tax liability and any additional amounts owed, including penalties and interest if applicable.

Taxpayers who disagree with the IRS’s findings can challenge the decision. The closing letter provides instructions on how to request an appeal, typically through the IRS Office of Appeals. This process allows for an independent review, where taxpayers can present further evidence or legal arguments supporting their position. If a resolution is not reached at this stage, the matter can be escalated to the U.S. Tax Court. However, many disputes are settled before reaching litigation, often through negotiation or by providing additional substantiating documents.