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What typically happens during an IRS audit?

On Behalf of | Jan 23, 2024 | Tax Law |

The Internal Revenue Service (IRS) receives millions of tax returns every year from both individuals and businesses. The IRS must review the calculations and disclosures of individual taxpayers to validate that they paid the appropriate amount in income taxes.

It would be nearly impossible for the IRS to perform an exhaustive review of the finances of each taxpayer filing a return every year. Instead, the IRS engages in a system of both targeted and randomized reviews. Computerized reviews, along with high-risk red flags, help identify tax returns that may include mistakes or signs of tax fraud. Certain returns receive more scrutiny and in-depth review.

Those reviews may then lead to audits. Individuals filing personal tax returns and business owners paying taxes for the organizations that they operate may sometimes receive notice that the IRS intends to audit them. What does the audit process usually entail?

Audits are different in every case

An audit is only a review. It does not necessarily mean that someone broke the law or that they owe taxes they failed to pay. Each audit is unique, and the IRS may use one of three approaches to the process.

Sometimes, the taxpayer simply needs to submit certain financial records to the IRS through the mail. Other times, the IRS might send a professional out to do an on-site audit at a business. Audits may also entail a taxpayer coming to an IRS facility to discuss their tax responsibilities with an IRS representative in person.

Audits often involve targeted questions and scrutiny of specific details. Discrepancies in reported income, questions about eligibility for credits and improper use of exemptions could all come up during a tax audit.

Those facing an audit have rights

Individual taxpayers and business owners do not have to undergo the stress of an audit all on their own. Given that the IRS can refer tax controversies out to federal prosecutors for criminal charges, those facing an audit typically have the right to bring an attorney with them during an in-person audit.

Many taxpayers facing an audit might benefit from consulting with a lawyer as soon as they receive a notice from the IRS. Learning more about audits and how to handle them may help people overcome tax controversies with minimal consequences.


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