What is an IRS Audit

An IRS audit is a formal examination of your tax return where the IRS reviews your income, deductions, and credits to verify they're accurate — most are handled by correspondence and don't require an in-person meeting.

An IRS audit (formally called an examination) is the IRS's review of a taxpayer's financial information to verify that the income, deductions, and credits reported on a tax return are accurate and comply with the tax laws. Despite their reputation, most audits are straightforward correspondence requests — not intimidating in-person confrontations with agents.

The IRS audits about 0.4% of individual returns each year, though the rate varies considerably by income level, return complexity, and specific items reported.

How Returns Are Selected for Audit

The IRS uses several methods to select returns:

DIF Score (Discriminant Information Function) Every return is scored by an IRS computer algorithm that compares reported items to statistical norms for your income level. Returns with unusual patterns — deductions much larger than average for a given income, for example — receive a higher score and are more likely to be reviewed.

Related examinations If you're a business partner, investor, or participant in a transaction where someone else is being audited, your return may be flagged as related.

Specific document matching The IRS receives copies of W-2s, 1099s, and other forms directly from payers. If what's on your return doesn't match what payers reported to the IRS, an automated CP2000 notice will follow.

Random selection A small percentage of returns are selected randomly as part of the National Research Program.

Common Audit Triggers

While no audit trigger is guaranteed, certain return characteristics increase audit risk:

Item	Why It Draws Scrutiny
Large charitable donations relative to income	IRS compares to statistical norms
Schedule C business losses, especially recurring	Suggests a hobby rather than a business
Home office deduction	Frequently overclaimed
Large vehicle deductions	Most personal vehicles aren't fully deductible
Unreported income (mismatched 1099s)	IRS computer matching catches these automatically
Earned income tax credit	High error and fraud rate in this area
Very high or very low income	Both ends of the income spectrum see higher audit rates
Math errors	Automatically flagged

Types of IRS Audits

Correspondence audit (most common) Conducted entirely by mail. The IRS sends a letter — usually a CP2000 or examination notice — requesting documentation for a specific item. You respond by mail with supporting documents.

Office audit You're asked to come to an IRS office to discuss certain items in person or bring documentation.

Field audit (least common) An IRS agent comes to your home, business, or your representative's office. These are typically reserved for complex returns, businesses, or situations where substantial amounts are at issue.

What to Do If You're Audited

1. Read the notice carefully — understand exactly what is being questioned. Many CP2000 notices simply flag a mismatch and can be resolved by providing documentation or acknowledging a correction.

2. Don't ignore it — failing to respond escalates the situation and may result in the IRS assessing additional tax automatically.

3. Gather documentation — receipts, bank statements, brokerage statements, mileage logs, charitable acknowledgment letters, etc.

4. Consider professional representation — a CPA, enrolled agent, or tax attorney can respond on your behalf and may be essential for complex audits.

5. Know your rights — you have the right to appeal any IRS findings, first through the IRS Office of Appeals and ultimately in Tax Court if needed.

Statute of Limitations

The IRS generally has 3 years from the due date of your return (or the date filed, if later) to audit it. This extends to 6 years if the IRS suspects you've underreported income by more than 25%. There is no time limit if the IRS suspects fraud or if you never filed a return.

Keep tax records — returns, supporting documents, and key financial statements — for at least 7 years to be safe.