A tax audit is an investigation conducted by the IRS in order to verify the information entered on a tax return is accurate and correct. It is review of an individual's or business's financial records and tax returns to ensure accuracy, compliance with tax laws, and proper tax collection. Audits can be random, desk-based, field visits, or even criminal investigations in cases of suspected fraud. The primary goals are to verify information, enforce tax regulations, and deter tax evasion.
Tax audits are usually triggered by unusual or unordinary deductions or forms of income listed on a tax return, but taxpayers can also be selected at random. Audits are typically initiated by tax authorities based on specific criteria like red flags, discrepancies, or random selection. Maintaining accurate and well-documented financial records and following tax laws can help you avoid an audit.
If the IRS determines that a taxpayer is subject to an audit, they will be notified only via U.S. mail.
Tax audits can be conducted at different times. They can happen after you've filed your tax return (post-filing audits), during the filing process (especially for complex cases), or even randomly without any specific trigger. The timing depends on the type of audit and your financial situation. A tax return is subject to an audit any time within six years of filing, though generally the IRS only includes returns filed within the last three years.
There are three types of tax audit that are conducted:
Mail audits are additional documentation requests from the IRS that a taxpayer will receive and respond to via mail.
Office audits are in-depth, in-person interviews conducted by audit officers at a local IRS office.
Field audits are very in-depth, in-person interviews conducted by IRS agents at your home or business.
A tax audit’s length will vary greatly depending on the type of audit that is conducted, how complex it is, and the taxpayer’s willingness to cooperate with any IRS findings.
There are three ways that an audit is concluded:
The result of the audit determines that changes need to be made, and the taxpayer agrees to make proposed amendments.
The result of the audit determines that changes need to be made, and the taxpayer does not agree to make proposed amendments. As a result, the taxpayer can either file an appeal or meet with an IRS manager for a dispute mediation.
3. No change
All information on the tax return is reviewed and confirmed, and no changes are needed.