What Happens When You Get Audited by the IRS?

An IRS audit represents a formal review by the Internal Revenue Service of an individual’s or organization’s financial information and tax returns. This process serves to verify the accuracy of reported income, deductions, and credits, ensuring compliance with federal tax laws. Audits are a routine component of the tax system, selected through various methods, which can include computer programs identifying potential discrepancies or random sampling. Receiving an audit notification does not automatically signify an error or wrongdoing on the taxpayer’s part. It simply indicates the IRS is examining certain aspects of a filed tax return.

Understanding IRS Audit Notifications

The Internal Revenue Service exclusively uses postal mail for initial audit notifications. This helps taxpayers identify and avoid potential scams, as the IRS will never initiate an audit by phone, email, or social media.

Common initial notices include a CP2000 notice, which indicates a discrepancy between income reported to the IRS by third parties (like employers or banks) and the income reported on a tax return. A formal audit notice, such as Letter 566 or Letter 2205, informs the taxpayer that their return is being examined. These notices specify the tax year under review and the particular items or issues being questioned.

Types of IRS Audits

The Internal Revenue Service conducts audits in three primary formats, each differing in scope and location. A correspondence audit, the most common type, is conducted entirely by mail and addresses simpler issues that can be resolved through document submission. These involve verifying specific deductions, credits, or income discrepancies.

An office audit requires the taxpayer to visit a local IRS office for an in-person meeting with an auditor. These audits cover more complex issues than correspondence audits but are narrower in scope than field audits, focusing on one or two specific areas of a tax return. The taxpayer brings requested documents to the IRS office for review.

A field audit is the most comprehensive type, where an IRS agent conducts the audit at the taxpayer’s home, business, or accountant’s office. These audits are reserved for complex individual or business returns and involve an extensive review of financial records. Field audits cover multiple tax years or a broad range of issues on a single return.

Preparing for an IRS Audit

Upon receiving an audit notice, carefully review the document to pinpoint the specific tax year and the exact items the IRS is questioning. The notice will clearly outline the areas of concern, such as specific deductions, income sources, or reported credits.

Gather all relevant documents and records. This includes the original tax return for the audited year, along with supporting documentation like receipts, invoices, bank statements, and canceled checks. For specific deductions, compile mileage logs, medical expense records, or legal documents that substantiate claimed amounts. Organizing these documents chronologically and by category helps demonstrate clarity and accuracy to the auditor.

Seeking professional representation from a qualified tax professional can provide an advantage during an audit. A Certified Public Accountant (CPA), an Enrolled Agent (EA), or a tax attorney possesses specialized knowledge of tax law and IRS procedures. These professionals can communicate directly with the IRS on the taxpayer’s behalf, help interpret complex tax regulations, and ensure all responses are accurate and timely.

Navigating the Audit Process

For correspondence audits, the process involves submitting requested documents through the mail. Send copies of documents, retaining originals, and keep a record of everything submitted along with proof of mailing, such as certified mail receipts.

For office and field audits, interaction occurs during scheduled meetings with the IRS auditor. During these meetings, taxpayers or their representatives should provide only the information and documents specifically requested by the auditor. Maintain clear, concise communication, answering questions directly without offering unrequested details or speculating. Take detailed notes during these meetings, including the date, time, attendees, and topics discussed.

If a taxpayer chooses professional representation, their CPA, Enrolled Agent, or tax attorney assumes the role of communication with the IRS. The representative can attend meetings, respond to inquiries, and present documentation on the taxpayer’s behalf, often without the taxpayer needing to be present. This ensures compliance with IRS procedures and protects the taxpayer’s rights throughout the audit.

Audit Outcomes and Next Steps

After the audit interaction concludes, the IRS will communicate its findings to the taxpayer. One possible outcome is a “no change” letter, indicating that the audit is closed with no adjustments needed to the tax liability.

Alternatively, the IRS may propose changes to the tax return, which could result in additional tax owed or a refund due. These proposed adjustments are detailed in a 30-day letter, which outlines the IRS’s findings and the basis for the changes. The taxpayer then has a period of 30 days to respond to this letter.

If the taxpayer disagrees with the proposed changes, they have the right to appeal within the IRS. This involves requesting a conference with the IRS Office of Appeals, which resolves tax disputes. If an agreement cannot be reached at the appeals level, the taxpayer may pursue their case in the U.S. Tax Court.