What to Expect During an IRS Audit: A Complete Guide

• admin
• January 23, 2025
• 6 min read

What to Expect During an IRS Audit

Facing an IRS audit can be intimidating, but understanding the process and what to expect can help ease your concerns. Audits are not as common as you might think—only a small percentage of tax returns are selected each year. However, if you find yourself under audit, preparation and knowledge are key.

This guide will walk you through the IRS audit process, common triggers, how to respond, and the possible outcomes. Whether you’re preparing for a correspondence audit or a face-to-face meeting, this resource provides the clarity and actionable advice you need.

What Is an IRS Audit?

An IRS audit is a formal review of your financial records and tax returns to ensure the accuracy of your reported income, deductions, and credits. The IRS conducts audits to confirm that taxpayers are meeting their legal obligations and paying the correct amount of taxes.

Audits can occur for various reasons, including random selection, suspicious patterns, or discrepancies flagged by the IRS’s automated systems. It’s essential to remember that an audit does not automatically imply wrongdoing; it’s simply a deeper look into your financial activity.

Common Reasons for an IRS Audit

1. High Income or Unusual Deductions Taxpayers with significantly higher income or deductions outside the norm for their income bracket may attract attention.
2. Unreported Income Forgetting to report income from freelance work, side gigs, or investments can trigger an audit.
3. Excessive Business Expenses Claiming unusually high business expenses relative to your income may raise red flags.
4. Errors or Omissions Simple mistakes, such as incorrect Social Security numbers or math errors, can lead to a closer look.
5. Random Selection Some audits are purely random, part of the IRS’s efforts to ensure compliance across the board.

Types of IRS Audits

1. Correspondence Audit The most common type, this audit is conducted via mail. The IRS requests specific documents or explanations to verify certain aspects of your return.
2. Office Audit Conducted at an IRS office, this type of audit typically involves a deeper review of your financial records and an in-person meeting with an IRS agent.
3. Field Audit This is the most comprehensive audit type, where an IRS agent visits your home, business, or tax preparer’s office to review records.

The IRS Audit Process

1. Initial Notification You’ll receive a letter from the IRS outlining the reason for the audit, the records they need, and the type of audit being conducted. Be cautious of phone calls or emails claiming to be from the IRS; the IRS does not initiate audits this way.
2. Document Submission For correspondence audits, you’ll typically submit copies of the requested documents by mail. For in-person audits, you’ll need to bring your records to the meeting.
3. Review and Questions The IRS will review the documents provided and may ask follow-up questions to clarify discrepancies or verify claims.
4. Resolution After reviewing your information, the IRS will either:
   • Accept your return as filed.
   • Propose changes that may result in additional taxes owed.
   • Refund you if they find errors in your favor.

How to Prepare for an IRS Audit

1. Stay Organized Keep copies of all tax returns, W-2s, 1099s, receipts, and documentation related to deductions and credits.
2. Respond Promptly Reply to the IRS within the timeframe specified in the audit letter to avoid further complications.
3. Consult a Tax Professional A CPA, enrolled agent, or tax attorney can help guide you through the process, especially for complex audits.
4. Understand Your Rights Taxpayers have the right to professional treatment, confidentiality, and the ability to appeal IRS decisions.

Common IRS Audit FAQs

1. How will I know if I’m being audited? The IRS will notify you by mail. Beware of phone scams or emails claiming to be from the IRS.

2. How long does an audit take? The timeline varies depending on the complexity of the audit. Simple correspondence audits may take a few weeks, while more detailed reviews can take months.

3. Can I dispute the audit findings? Yes, you can appeal the IRS’s decision if you disagree with their findings.

4. Will I owe money after an audit? Not necessarily. While some audits result in additional taxes owed, others may confirm no changes or even result in a refund.

Possible Outcomes of an IRS Audit

1. No Change The IRS agrees with your return as filed.
2. Proposed Changes The IRS suggests adjustments, which may result in additional taxes owed or a reduced refund.
3. Tax Refund Rare but possible, especially if the IRS finds you overpaid.
4. Penalties and Interest If the IRS determines you underreported income or claimed disallowed deductions, you may owe taxes plus penalties and interest.

Tips to Avoid Future Audits

1. File Accurate Returns Double-check your numbers and ensure all income is reported.
2. Maintain Good Records Save receipts, invoices, and other documentation for at least seven years.
3. Work with Professionals A reputable tax preparer or accountant can help ensure compliance and accuracy.
4. Avoid Overstated Deductions Claim only legitimate deductions and avoid exaggerating expenses.