What is an Audit (IRS Audit)?

IRS Audit: What You Need to Know

An IRS audit is simply when the IRS looks closely at your tax return to make sure everything is correct. It’s a review or check of your financial information. They want to see if you followed the tax rules and reported the right amount of income and deductions.

Understanding Different Types of IRS Audits

There are a few ways the IRS might audit you. These types depend on how complicated your tax situation is and what they need to check. Knowing the difference can help you prepare.

Correspondence Audit: Audited by Mail

Most IRS audits, about 70%, happen by mail. This is called a correspondence audit. It’s usually about small things, like a simple math error or a mismatch between what you reported and what someone else reported (like a W-2 or 1099). The IRS sends you a letter asking for more information or explaining a correction they made. You just mail them the documents they need.

Office (Desk) Audit: Meeting at the IRS

An office audit means you need to go to an IRS office. These deal with more complex issues than a mail audit. They might want to review certain deductions or ask questions about specific parts of your tax return. You’ll bring your records and meet with an IRS agent. These visits usually last for a few hours.

Field Audit: At Your Place

The most detailed type is a field audit. In this case, an IRS agent comes to your home or business to review your records. This usually happens for businesses or people with very complicated tax returns. Field audits are more in-depth and can take a full day or even longer.

How to Prepare for or Respond to an IRS Audit

If you receive an IRS audit letter, don’t panic! Take a deep breath and follow these steps:

1. Read the letter carefully: Understand exactly what the IRS is asking for and for which tax year.
2. Gather all requested documents: Be thorough and organized. Make copies of everything you send to the IRS.
3. Respond on time: The letter will give you a deadline. Don’t miss it. If you need more time, ask for it.
4. Consider professional help: For anything beyond a very simple mail audit, talking to a tax professional is highly recommended. They understand the process and can represent you.
5. Stay calm and be honest: Provide clear, truthful answers and documentation.
6. Know your rights: Remember you have the right to professional treatment, privacy, and the ability to appeal decisions. The IRS also has a Taxpayer Bill of Rights.

Being prepared with good records year-round is the best way to handle an IRS audit if one comes your way. Keep your receipts, bank statements, and other important tax documents organized for at least three years after you file to avoid IRS penalties.

FAQ