IRS Audits

The short version

An IRS audit is when the Internal Revenue Service (IRS) reviews your financial information to make sure you have reported your income, expenses, and credits correctly. The IRS wants to check that you have followed tax laws and that you paid the right amount of tax. Knowing what to expect and your rights can help you handle an audit effectively.

The law this is built on

Every point below comes from the authority named next to it. Verify the current text before relying on it.

26 U.S.C. § 7602(a)(1)
This part of the law states that the IRS can examine any books, papers, records, or other data that might be relevant to a tax inquiry.
Why it matters: This is the legal basis for the IRS to ask you for documents and information during an audit.
26 U.S.C. § 7602(a)(2)
The IRS can summon (officially ask) any person who has possession of relevant books of account or other data to appear before an IRS officer and produce those records.
Why it matters: This means the IRS can legally require you or others with your financial information to provide it for their review.
26 U.S.C. § 7602(a)(3)
This section allows the IRS to take testimony under oath from any person they believe has knowledge about the tax matter.
Why it matters: The IRS can ask you or others to provide sworn statements about your tax situation during an audit.

Words you need to know

Audit: An examination by the IRS of your financial records to verify the accuracy of your tax return.
Information Document Request (IDR): A formal request from the IRS asking you to provide specific documents or information related to your tax return.
Notice of Deficiency: A letter from the IRS stating that they believe you owe additional tax, explaining their reasons, and informing you of your right to appeal.
Appeal: Your right to ask an independent IRS office to review your case if you disagree with the auditor's findings.
Statute of Limitations: The legal time limit during which the IRS can audit your tax return and assess additional tax. Usually, this is three years from the date you filed your return.

Your rights

✓You have the right to know why the IRS is asking for information.
✓You have the right to professional representation (e.g., by an attorney, CPA, or Enrolled Agent).
✓You have the right to a fair and impartial audit.
✓You have the right to appeal an audit decision you disagree with.
✓You have the right to receive a clear explanation of any proposed changes to your tax return.
✓You have the right to privacy and confidentiality regarding your tax matters.

How the process actually works

1
Receive Notification
Varies; can be within three years of filing your return.
You will usually receive a letter from the IRS by mail informing you that your tax return has been selected for audit. This letter will explain why you were chosen and what information they need.
2
Understand the Request
Immediately after receiving the notice.
Carefully read the IRS letter. It will specify which tax year is being audited and what documents or information they are asking for. If you don't understand it, you can ask for clarification.
3
Gather Documents
Before your scheduled audit appointment or response deadline.
Collect all the requested records, such as receipts, bank statements, canceled checks, and other supporting evidence. Organize them neatly.
4
Respond to the IRS
By the deadline specified in the IRS letter, usually 30 days.
You can respond to the audit either by mail, in person, or sometimes by phone. Provide the requested information and be prepared to explain your records.
5
Review Findings
After the IRS has reviewed your submitted documents.
After examining your information, the IRS auditor will inform you of their findings. They will explain if they propose changes to your tax return and why.
6
Agree or Disagree
Within a specified period after receiving the audit findings, typically 30 days.
You can agree with the audit findings and sign a form (like Form 870) agreeing to the changes and any additional tax due. If you disagree, you can appeal the decision.

Deadlines that can end your case

Initial Response to Audit Notice
Usually 30 days from the date of the letter
Failing to respond could lead to the IRS making a decision based on the information they have, potentially resulting in a higher tax bill.
Request for Appeal
Generally 30 days from the date of the audit findings letter (Notice of Deficiency)
If you miss this deadline, you may lose your right to an administrative appeal and may need to go to tax court to dispute the IRS's findings.
Statute of Limitations for Assessment
Generally 3 years from the date you filed your tax return (or the due date, whichever is later)
If this period expires, the IRS usually cannot assess additional tax for that tax year, unless there was substantial understatement of income (6 years) or fraud (no limit).

Costly mistakes

✕Ignoring the audit notice, which can lead to default assessments and penalties.
✕Providing more information than requested, potentially opening up new areas for examination.
✕Being rude or confrontational with the auditor, which can make the process more difficult.
✕Failing to keep accurate records to support deductions or income reported.
✕Not asking for help from a qualified tax professional when you feel overwhelmed or unsure.
✕Not appealing an audit decision when you genuinely disagree and have supporting evidence.

Your checklist

Read the IRS audit letter carefully to understand what is being requested.
Gather all requested documents and organize them clearly.
If needed, contact a tax professional (like a CPA or attorney) to help you respond.
Respond to the IRS by the deadline specified in the letter.
Keep copies of everything you send to the IRS.
If you disagree with the audit findings, consider your appeal options.

Common questions

Why was I selected for an audit?

The IRS selects returns for audit for many reasons. Sometimes it's a random selection, or it could be because certain items on your return don't match information from other sources (like W-2s or 1099s), or if your deductions are unusually high for your income level.

What kind of records should I keep for an audit?

You should keep records that support all income, expenses, and credits you claim. This includes receipts, invoices, canceled checks, bank statements, mileage logs, and other documents. The specific records depend on what items the IRS is auditing. (See 26 U.S.C. § 7602(a)(1))

Can someone else represent me during an audit?

Yes, you have the right to have a qualified professional represent you. This could be an attorney, Certified Public Accountant (CPA), or Enrolled Agent (EA). You can even have them attend the audit in your place. This is part of your taxpayer rights.

What happens if I don't respond to an audit notice?

If you don't respond, the IRS will make a decision based on the information they have, which might lead to an assessment of additional tax, penalties, and interest. This could also lead to collection actions if the tax remains unpaid.

How long does an audit usually take?

The length of an audit varies greatly depending on the complexity of your tax return and the issues being examined. Some audits can be resolved in a few weeks, while more complex cases can take months or even longer.

How this changes by state

Tax audits are primarily a federal matter conducted by the Internal Revenue Service (IRS). However, most states also have their own income tax systems and state tax agencies, which can conduct their own audits. The rules and procedures for state tax audits vary widely by state. If you receive an audit notice from your state's tax department, you should check your state's specific tax laws and regulations, as your rights and the process may be different from an IRS audit.

When you need a lawyer

You should consider getting legal help if the audit involves complex legal questions, if you believe the IRS is making a mistake and you need strong advocacy, if the audit is extensive and covers multiple tax years, or if there's any suspicion of tax fraud or criminal investigation. A tax attorney can protect your rights and represent you in discussions or appeals with the IRS.

Do this today

→If you receive an IRS audit notice, carefully read the entire letter immediately.
→Gather all tax documents and records from the tax year(s) mentioned in the audit notice.
→Consider consulting with a tax professional (like a CPA or Enrolled Agent) to understand your options and assist with your response.

This lesson is legal information for educational purposes only, based on 26 U.S.C. § 7602. It is not legal advice and does not create an attorney-client relationship.