What Are Tax Audits?
Tax audits are completed by the IRS as a way to verify tax returns are accurate and paid in full. Learn everything you need to know about tax audits, including what triggers an audit, how to prepare, and what to expect during the process. Our guide offers insight into tax audits so you can feel more prepared if you face one in the future.
Key Takeaways
- A tax audit is an examination of a taxpayer's financial records and other related documents to ensure that the information a taxpayer has provided on their tax return is accurate and that the correct amount of tax has been paid.
- Discrepancies in reported income, failure to meet reporting thresholds, and incorrect information or withholding could all potentially trigger an audit.
- A tax audit can be conducted by the IRS or state tax agency, and it may result in additional taxes, penalties, or interest if the taxpayer is found to owe more taxes than originally reported.
- Possible outcomes of an audit include the IRS accepting the taxpayer's explanations and documentation, proposing changes to the tax return, or the taxpayer challenging the findings and requesting a formal appeals conference.
Hearing from the IRS
A tax audit is when the IRS decides to examine your tax return a little more closely and verify that your income and deductions are accurate. Typically, your tax return is chosen for audit when something you have entered on your return is out of the ordinary. There are three main types of IRS audits: the mail audit, the office audit and the field audit.
Mail audits
No matter what type of audit the IRS decides to conduct, you will receive notification of it by mail. A mail audit is the simplest type of IRS examination and does not require you to meet with an auditor in person.
Typically, the IRS requests additional documentation to substantiate various items you report on your tax return. For example, if you claim $10,000 in charitable deductions, the IRS may send you a letter requesting proof of your donations. Generally, submitting sufficient proof will conclude the audit in your favor if the IRS is satisfied.
Office audits
An office audit is an in-person audit conducted at a local IRS office. These audits are typically more in-depth than mail audits and usually include questioning by an audit officer about information on your return. You will be asked to bring specific information to an office audit, such as the books and records for your business or your personal bank statements and receipts. You also have the right to bring an accountant or lawyer to represent you at these meetings.
Field audits
The field audit is the broadest type of examination that the IRS conducts. In these cases, an IRS agent will conduct the audit at your home or place of business. Generally, field audits are conducted when the IRS is questioning more than just a deduction or two. A field audit is generally very thorough and will cover many, if not all, items on your return.
TurboTax Tip:
Proper documentation and accurate reporting can help you avoid a tax audit.
Possible outcomes of an audit
There are three possible outcomes of an IRS audit. If the IRS is satisfied with your explanations and the documentation you provide, then it will not change anything on your tax return. If the IRS proposes changes to your tax return, you can either agree and accept the changes or challenge the agent's assessment. If you agree, you will sign an examination report or other form provided by the IRS and establish some type of payment arrangement. If you disagree with the findings, you can set up a conference with an IRS manager to further review your case or you can request a formal appeals conference.
TurboTax has you covered
When you file your taxes with TurboTax, you automatically receive access to our Audit Support Center for help understanding your IRS notice, what to expect and how to prepare for an audit, and finding year-round answers to your audit questions. The TurboTax Audit Support Guarantee also includes the option to connect with an experienced tax professional for free one-on-one audit guidance.
For those who want even more protection, TurboTax offers Audit Defense, which provides full representation in the event of an audit, for an additional fee.
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