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What Happens During an IRS Audit?

May 16, 2015

The IRS audits a company or an individual to review their tax and financial information and ensure that they are compliant with tax laws. Most taxpayers fear an audit. Statistically, however, only 1% of individual taxpayers are audited each year. In many cases, the IRS only asks for information through mail to see if it matches their record.

Tax Audit Selection Method

The method of selecting taxpayers for a tax audit involves:

  • Random selection based on a statistical formula; and/or
  • When taxpayer-submitted records do not match the information on W-2 or Form 1099; and/or
  • When business partners or investors of the taxpayer are being audited

Because an IRS audit can be based on random selection, virtually any taxpayer can be chosen for an audit. Tax return issues, non-compliance, and higher income brackets do not always contribute to an audit trigger. This is a frequent misconception among taxpayers.

How You Are Informed of The IRS Audit

If you are chosen for an audit, you will typically receive a letter in the mail. The IRS does not use email to notify taxpayers of problems or intended action. If you receive an email about an audit, it is most certainly a scam.

How is The IRS Audit Conducted?

Not all audits are conducted in person. Some are carried out solely through the mail. If you are asked for an in-person interview as part of the audit, the interview will probably take place at an IRS office, your home, your office, or your accountant’s office. This is known as a field audit. The IRS will require you to furnish information about your finances and taxes. You are advised prior to the interview what records you will need to bring.

After The Tax Audit Findings

After the completion of an audit, you are given the option to agree or disagree with the IRS findings. If you agree, you will need to sign the examination report or a form, depending upon the type of audit. If you disagree, the IRS orders a conference with a manager to further review and assess the issue.

An IRS audit can lead to no changes if the taxpayer is found to be in compliance with all tax laws. In the case of minor discrepancies, the IRS will propose changes to the tax return. If there more serious issues discovered, such as tax evasion or tax avoidance, the taxpayer can be penalized accordingly.