What Does It Mean to Be Audited by the IRS?

by Team eLocal
Concept image for filing federal income taxes online and being audited. Computer keyboard, calculator and pen are placed on income tax form 1040. The 'word' AUDIT is stamped on the form 1040.

Being selected for an IRS audit can be scary, but it doesn’t necessarily mean you’ve done something wrong.

In fact, many accounts are chosen for audit by random selection. If you've received an official letter from the IRS and you're nervous about what comes next, understanding what an audit is and what to expect during the examination may ease your mind as you begin the process.

What Does It Mean to Be Audited by the IRS?

When you're audited by the IRS, it means that the organization wants to examine one or more of your tax returns for accuracy. Although IRS audits may result from suspicious activity, many are done simply to make sure taxpayers are filing accurate financial information and adhering to federal tax laws. An audit may also be conducted if an individual or business’s tax returns involve transactions with other taxpayers who’ve been selected for an audit.

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How Does the IRS Contact You if You Are Being Audited?

If you're chosen for an audit, you’ll receive a notification by certified mail, which will include contact information and instructions. The IRS will never contact you by telephone, email or social media.

How Does the IRS Conduct the Audit?

IRS tax audits are conducted in person or via mail. In-person audits often take place at an IRS office, but an IRS agent may perform a field audit at the taxpayer’s home, place of business or their tax professional’s office. If the audit is done by mail, the taxpayer is expected to mail in any documents requested in the audit letter.

Requested documents may include:

  • Employment documents such as W-2s or form 1099
  • Legal documents relating to property acquisition or divorce settlements
  • Loan agreements
  • Receipts for business expenses or charitable deductions
  • Bills
  • Insurance paperwork documenting theft or loss

The agent conducting the audit may also ask you to provide additional information via a formal questionnaire.

How Does the Audit Conclude?

Once you’ve provided the relevant documentation, the auditor reviews everything and presents you with their findings. If the auditor finds no changes necessary, no further action is required. However, if changes are suggested, you may face additional income taxes. If you disagree with the audit results, you may consult with an IRS manager or file an appeal.

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