"An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct."
Random Selection and Computer Screening
Sometimes returns are selected based solely on a statistical formula. The IRS compare your tax return against “norms” for similar returns. The IRS develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information
IRS may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit
The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or at the taxpayer's home, place of business, or accountant's office (field audit). Remember, you will be contacted initially by mail. The IRS will provide all contact information and instructions in the letter you will receive.
If the IRS conduct your audit by mail, the IRS letter will request additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. If you have too many books or records to mail, you can request a face-to-face audit. The IRS will provide contact information and instructions in the letter you receive.
For audits conducted by mail - fax your written request to the number shown on the IRS letter you received. If you are unable to submit the request by fax, mail your request to the address shown on the IRS letter. The IRS can ordinarily grant you a one-time automatic 30-day extension.
For audits conducted by in-person interview – If your audit is being conducted in person, contact the auditor assigned to your audit to request an extension. If necessary, you may contact the auditor’s manager.
Extending the Tax Assessment Period
The IRS can include returns filed within the last three years in an audit. If the IRS identify a substantial error, the IRS may add additional years. The IRS tries to audit tax returns as soon as possible after they are filed. Accordingly, most audits will be of returns filed within the last two years.
If an audit is not resolved, the IRS may request extending the statute of limitations for assessment tax. The statute of limitations limits the time allowed to assess additional tax. It is generally three years after a return is due or was filed, whichever is later. There is also a statute of limitations for making refunds. Extending the statute gives you more time to provide further documentation to support your position; request an appeal if you do not agree with the audit results; or to claim a tax refund or credit. It also gives the IRS time to complete the audit and provides time to process the audit results.
Your Right as a Taxpayer
Your rights as a taxpayer as well as the examination, appeal, collection, and refund processes.
These rights include:
- A right to professional and courteous treatment by IRS employees.
- A right to privacy and confidentiality about tax matters.
- A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
- A right to representation, by oneself or an authorized representative.
- A right to appeal disagreements, both within the IRS and before the courts
Conclusion of an Audit
An audit can be concluded in three ways:
- No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
- Agreed: an audit where the IRS proposed changes and you understand and agree with the changes.
- Disagreed: an audit where the IRS has proposed changes and you understand but disagree with the changes