Getting a notice from the IRS can be stressful, but an IRS audit doesn’t have to be a catastrophe. An audit is simply a review of your financial information to ensure you’ve filed your tax return correctly according to tax law.
Understanding the process is the first step to navigating it with confidence. This guide breaks down exactly what happens during an IRS audit, the different types you might face, and how to prepare for a smooth resolution.
Key Takeaways
- An IRS audit is a review of your financial records, not an accusation of wrongdoing.
- The IRS always initiates an audit by mail. Be wary of phone calls or emails claiming to be the IRS.
- There are three main types of audits: Correspondence (by mail), Office (at an IRS office), and Field (at your home or business).
- Being organized, responsive, and honest is the best strategy. Professional help from a CPA or tax attorney can be invaluable.
What Is an IRS Audit?
An IRS audit, officially called an “examination,” is a review of your tax return and financial documents to verify that your reported income, deductions, and credits are accurate. Audits are selected for various reasons, including random selection, computer screening, or related examinations of other taxpayers you’ve done business with.
It’s important to remember: being selected for an audit does not mean the IRS suspects you of a crime. Many audits are resolved quickly and simply, especially when your records are well-organized and you cooperate with the examiner.
How the IRS Notifies You of an Audit
This is a critical point for avoiding scams. The IRS will always initiate an audit by sending you a letter in the mail. You will not receive a surprise phone call, text message, or email demanding payment or personal information to start an audit.
The official letter will:
- Explain that your return has been selected for examination.
- Provide contact information for the specific agent or department handling your case.
- Outline the tax year(s) in question.
If you receive a notice, you can verify its legitimacy by calling the main IRS phone number directly or by checking your account on the official IRS website.
The 3 Main Types of IRS Audits
Audits vary in scope and complexity. Here are the three types you might encounter.
1. Correspondence Audit
This is the most common and least invasive type of audit, conducted entirely by mail. Often, it’s triggered by a simple discrepancy, such as a math error or unreported income that appears on a 1099 form but not on your tax return.
The IRS will send you a letter requesting more information or payment. If you receive an Information Document Request (IDR), you’ll need to mail back copies of receipts, bank statements, or other documents to support a specific deduction or credit you claimed.
2. Office Audit
For an office audit, you will be required to bring your documents to a local IRS office to meet with an agent. You’ll receive an IDR in advance specifying exactly which documents to bring.
Success Tip: Do not show up with a shoebox full of loose receipts. Organize your documents in labeled folders or binders that correspond to the items on the IDR. This makes the process faster and demonstrates your preparedness.
3. Field Audit
This is the most comprehensive type of audit. An IRS agent will visit your home or place of business to conduct the examination. Field audits are typically reserved for more complex returns, especially for business owners or self-employed individuals.
You will receive a detailed IDR beforehand, but the agent may ask to see additional records if they notice inconsistencies. For a business, be prepared to provide access to your general ledger, balance sheets, income statements, and bank records.
How to Prepare for an IRS Audit: A 5-Step Checklist
Receiving an audit notice can be nerve-wracking, but proactive preparation can make all the difference.
✅ 1. Get Organized Immediately
Gather all relevant financial documents for the tax year in question. This includes bank statements, receipts, invoices, proof of expenses, and any other records that support your tax return.
✅ 2. Review Your Own Tax Return
Before meeting with the IRS, conduct a self-audit. Go through the return line by line and match your claims to your documentation. This helps refresh your memory and identify any potential weak spots in advance.
✅ 3. Be Honest and Cooperative
Never lie, guess, or provide misleading information to an IRS agent. If you don’t know the answer to a question, it’s okay to say so and offer to find the information. A cooperative and transparent attitude builds trust and can prevent the audit from expanding in scope.
✅ 4. Only Provide What Is Asked For
While you must be honest, you are not required to volunteer extra information or documents. Stick to providing only the specific items listed on the Information Document Request (IDR). Giving the agent extra, unsolicited information can sometimes lead to new questions.
✅ 5. Consider Hiring a Tax Professional
You don’t have to face an audit alone. A tax professional—such as a Certified Public Accountant (CPA), Enrolled Agent (EA), or tax attorney—can represent you. They understand tax law, speak the IRS’s language, and can handle all communication on your behalf, ensuring your rights are protected.
What Happens After the Audit is Complete?
Once the examination is over, you’ll receive a report detailing the agent’s findings. There are three possible outcomes:
- No Change: The agent finds no issues, and your return is accepted as filed.
- Refund: The agent finds you actually overpaid your taxes, and you are due a refund.
- Balance Due: The agent proposes changes that result in you owing additional tax, penalties, and interest.
If you agree with the findings, you’ll sign a form and can then arrange for payment. If you disagree, you have the right to appeal. You can request a conference with an IRS manager or file a formal appeal with the IRS Appeals Office, an independent division within the IRS that helps resolve tax disputes.
Need Expert IRS Audit Assistance?
An IRS audit is a serious matter, but it’s a manageable one. By staying calm, organized, and prepared, you can navigate the process effectively.
If you’re facing an audit and need guidance, don’t hesitate to act. Our team of experienced tax professionals is here to answer your questions and assist you in working toward the best possible outcome.
