While the number changes annually based on several factors, the IRS generally audits a little less than 1% of all filed tax returns each year. There are certain red flags, however, that might trigger an audit. Math errors, failing to report all income and making unrealistic deductions can all signal the IRS that a tax return needs further attention. Depending on the severity of the data mismatch and the steps the IRS needs to take to resolve them, individuals could face different types of audits, including:
- An audit through correspondence: Depending on the types of information the IRS needs clarified and the severity of the issues, investigators might complete the audit over mail. The “correspondence audit” usually takes place when the IRS is investigating routine errors such as incomplete paperwork, incorrect math or missing schedules.
- An in-office audit: This is generally what people think about when they hear the term IRS audit. The IRS schedules an individual to appear in their local branch office to discuss the factors that triggered the audit. Often, the IRS will include details which help the individual prepare the right files to present at the location.
- An audit in the field: This is perhaps the most extensive of the different types of audits as the IRS investigator will come to your home, business or accountant’s office to complete the audit. The investigator will pour over the totality of relevant documents, records and receipts to arrive at satisfactory answers to the auditor’s concerns.
Individuals fear a tax audit for good reason – it can be a harrowing experience with potentially devastating consequences. The IRS is a relentless organization with vast resources at their disposal. That said, they are not simply out to punish people. Their goal is to uncover wrongdoing and correct errors. If you maintain detailed records and enlist the aid of a legal professional at the earliest time, you can present a strong case at your tax audit.