How an IRS Audit Works

The words, “IRS audit” audit are two of the most terrifying words in the English language, even though everything having to do with the IRS is synonymous with a headache for most Americans as it is. However, for those undergoing an IRS audit, knowing what to expect is extremely important if there is any hope of having the audit findings turn out in your favor.

-Why does the IRS audit?

The IRS decides to audit a person or business when a comprehensive review of a tax return raises suspicions that a taxpayer is not paying enough taxes, taking too many deductions or credits or hiding income. Audits are most common with doctors, lawyers and self-employed individuals, but can happen to anyone, depending on the preliminary IRS findings with an initial tax return.

-Audit Types

There are several types of IRS audits: correspondence audits, office audits and field audits. A correspondence audit is somewhat self-explanatory; in these audits, the auditor orders the taxpayer to submit missing or erroneous documentation via mail, after which the auditor reviews the file and make a determination. An office audit occurs when the IRS summons a taxpayer to a local office, ordering them to bring copies of financial documents. A field audit occurs when the IRS sends out an auditor or team of auditors to a business, in order to dig through all of the financial documentation associated with the business.

-Auditing Process

Audits are expensive. They cost the IRS labor and money to complete. When the IRS flags a tax return, they immediately assign an auditor on the file. It is his responsibility to review all of the financial records for the individual or business under audit, including bank statements and receipts. The process can take days, or even weeks to complete, depending on the amount of records to review. The auditor scans all of the financial documentation and weighs that against the stated information in the tax return. There is no real mystery to an audit, merely a matter of time before an auditor clears a file or finds errors on the tax return and assesses a penalty.


Penalties for filing a fraudulent tax return are severe. In fact, some will even include jail time. In most cases, however, the IRS will assess a penalty and fees regarding unpaid or underpaid taxes. In the event that the amount goes unpaid, the IRS will charge interest on the unpaid amount and file liens against the taxpayer’s personal property, allowing them to claim homes, cars or garnish wages until the tax bill is satisfied.

If the IRS does not find fault with a file, the auditor will clear it and all parties can go their own ways, without penalty. However, these cases are rare, as the IRS is not likely to audit a file that they do not believe contains some type of fault or fraud.

When filing income tax returns, the best protection from an audit or negative finding because of an audit is using a certified tax professional for advice and assistance. Many of these companies and firms provide audit protection and support for a small, additional fee when preparing your tax return.