How Do IRS Audits Work?

They don’t automatically mean an IRS agent will be at your door

Reviewed by Erika Rasure
Fact checked by Suzanne Kvilhaug

The word “audit” can make anyone break out in a sweat, but understanding what it is and how the Internal Revenue Service (IRS) works may make you more comfortable. Some audits are no big deal; some can be onerous. Once you identify the type of tax audit being conducted, you’ll know—or at least have a better sense of—what’s involved. So dry your brow, and let’s begin.

Key Takeaways

• Understanding the different types of IRS audits can help you navigate them more confidently.
• A correspondence audit is handled via letters, often asking for documents or clarifications on deductions.
• An office audit requires an in-person interview with the IRS.
• A field audit means an IRS agent may visit your home, business, or accountant’s office for a more in-depth review.
• If you disagree with your audit results, you can appeal the decision.

Correspondence Audits

As the name implies, correspondence audits are handled through written correspondence, such as mail. This is the simplest type of audit and typically involves requesting additional information or clarification.

The Simple Letter

The first type of correspondence is a simple letter from the IRS claiming you owe the government money. While this missive is not technically an audit, the failure to resolve it may cause the initial matter to devolve into one.

A simple letter from the IRS can result from:

• A math error on your part on your tax return (for example, you meant to report $2,500 in income but only reported $500, so you owe taxes on the omitted $2,000).
• An omission of income on your tax return that’s been reported to the IRS on another form (e.g., your W-2 Form, 1099 Form for certain investments or independent contractor wages, or Schedule K-1 for an interest in a partnership, S corporation, trust, or estate).

If you get such a letter, you can agree that the fault was yours and pay the bill (taxes, interest, and, in some cases, penalties), something you can decide yourself if the mistake is obvious and wholly yours. Or you can disagree and proceed to further examination of the specific items in contention (which may continue to be handled by correspondence or on the telephone).

You may want to bring in a tax professional if you don’t feel comfortable arguing your position (e.g., the IRS says you didn’t include income on your return that you, and your preparer, believe is not taxable).

The Audit Letter

The second type of letter you may get from the IRS is one asking for certain documents to support a deduction or other position taken on your return. This a real, albeit small, audit: a correspondence audit. Maybe the IRS wants to see a written acknowledgment from a charity for a donation you made and deducted; maybe you need to supply a canceled check or credit card receipt for another deductible expense. Mailing in the requested proof can easily resolve the issue.

If you don’t have the proof, you may want to pay up in order to close the matter (e.g., the amount involved is minimal and you believe your time is better spent in other pursuits). You can continue to argue your point through IRS channels (all of which will be spelled out in further correspondence from the IRS) and ultimately litigate (if the issue is significant enough to justify your time and the cost of a professional if you choose to have representation).

Note

If you paid a pro (a CPA or other accountant) to prepare your return, they can deal with all this as your representative but may charge by the hour for this service. If you used tax return preparation software, you may have audit representation if the program gave it to you or you bought it.

Office Audit

The IRS may want to interview you in person regarding specific items on your return. This is a full-fledged audit and a step-up in seriousness. You’ll receive a letter asking you to come to a designated IRS office on a particular date (the appointment can be rescheduled for your convenience, as long as the IRS agrees).

You can bring a CPA or other tax professional for representation, which may be a good idea to make sure your actions won’t expand the IRS’s inquiries beyond those specified in the audit letter.

An audit may result in no change to your return, a finding that you owe taxes, or even a finding that the IRS owes you a refund. An unfavorable initial determination by the IRS agent you meet with is not necessarily final. You have a right to appeal it and, if still unsatisfied, go to court.

Field Audit

A field audit is the most intrusive type, where an IRS agent comes to your home, business (if you’re self-employed), or accountant’s office to review your records extensively. While these audits are rare for individuals, they are more common for businesses.

If you are selected for a field audit, it is highly advisable to have a tax professional with you. This ensures your rights are protected and helps prevent the audit from expanding to areas outside the original scope.

Line-by-Line Audits

These are the most dreaded audits. Under the National Research Program (NRP), the IRS may select taxpayers at random to have every line of their return scrutinized. While rare, these audits can result in additional taxes owed, plus interest and penalties.

How Likely Are You To Get Audited?

The odds of getting audited by the IRS are low. In fact, fewer than half of 1% of individual returns were audited in 2019 (the most recent data). However, audits can vary based on factors such as income level and the complexity of your return.

How Can You Avoid Getting Audited?

There’s no way to guarantee you won’t be audited, as some audits are random. But there are some big red flags you can avoid to help reduce your chances of being audited. Avoid overestimating donated amounts; make sure your return has been double- and triple-checked for simple math errors; make sure you sign your return; don’t under-report income; don’t overstate home office deductions; and don’t narrowly wiggle out of an income threshold by a small amount through inflating numbers.

Does Your Income Determine If You Get Audited?

To a large extent, yes. According to recent IRS statistics, your chances of being audited increase substantially if your income is over $500,000 a year. Roughly 0.2% of individual filers who earned between $200,000 and $500,000 in 2020 (the most recent statistics from the IRS) were audited, but 0.6% of filers who earned between $500,000 and $1,000,000 were audited. The likelihood of being audited is highest in the highest income group. Roughly 8.7% of those who earned $10 million or more were audited in 2019.

The Bottom Line

IRS audit statistics released in May 2022 show that your chances of being audited are slim (less than half of 1%—only 0.45%—of individual returns were audited in 2019, the most recently-available numbers, down from 0.59% in 2018, and much less than in 2010, when it was 1.11%).

Overall, audits are down, and IRS budget and personnel constraints make it likely that the chances of being audited are only going to be lower in the near future. Still, if you should find yourself under an audit, know how they work and your rights in the process, which are delineated in detail in IRS Publication 556.