An IRS audit (officially called an "examination") is a review of a taxpayer's financial records and tax return to verify that income, deductions, and credits were reported correctly and that the correct tax was paid.
Types of audits:
| Type | Location | How it works | |---|---|---| | Correspondence | By mail | Most common; IRS requests specific documents via letter | | Office | IRS office | Taxpayer brings records to an IRS office | | Field | Taxpayer's home/business | IRS revenue agent visits; most comprehensive |
Audit triggers (common): - High income (higher audit rates for $1M+ filers). - Large or unusual deductions relative to income. - Unreported income (1099 mismatch). - Schedule C losses (self-employment) showing repeated losses. - Home office deductions, large charitable contributions. - Foreign bank accounts.
Taxpayer rights during an audit: - Right to be represented by an authorized representative (enrolled agent, CPA, attorney) via Form 2848. - Right to make an audio recording of an in-person interview (with advance notice). - Right to appeal the audit findings.
Statute of limitations for audit: - Generally 3 years from the later of the return due date or filing date. - 6 years if gross income is understated by more than 25%. - No limit if the return is fraudulent or if no return was filed.
After the audit: IRS issues an examination report (30-day letter). Taxpayer can agree, request IRS Appeals, or go to Tax Court.
> Exam tip: Standard audit SOL = 3 years; 6 years for 25%+ understatement; unlimited for fraud/no return. Enrolled agents can represent taxpayers in all IRS proceedings. Heavily tested on EA Part 3.