IRS Audits

An IRS audit is a request for proof. The agency has questions about a return and wants records, explanations, or both, and how you answer decides whether it ends as a correspondence exchange or grows into penalties, additional years, or a referral.

Most audits begin with a letter, not an agent at the door. What matters in the first weeks is understanding which kind of audit you are in, what the IRS is actually asking for, and what you are and are not required to hand over. Getting that right early is usually the difference between a contained review and an expanding one.

Why the IRS audits a return

Audits are rarely random. Most start when something on a return conflicts with information the IRS already holds, or scores unusually against comparable filers. The common reasons:

• Deductions or credits that are large relative to reported income
• Income reported by third parties on 1099s or W-2s that does not appear on the return
• Late filings, missing years, or a pattern of extensions
• Cash-intensive businesses and industries the IRS has flagged
• Related-party transactions and pass-through entities already under review
• Selection under a compliance-measurement research program

Each trigger tells you something about what the examiner will focus on. The full list, and what to do about each one, is on the IRS audit triggers page.

The four kinds of IRS audit

A correspondence audit is handled entirely by mail and is by far the most common. An office audit asks you to bring documents to an IRS office. A field audit brings an agent to your business or home and is the most intrusive. Compliance-measurement audits are rare research examinations that test a return line by line. Each has its own rhythm, and your response should match it. See types of IRS audits for what to expect from each, and preparing for an audit for the practical steps.

What an attorney changes

Bringing counsel in does three things. It puts a professional between you and the examiner, so every request is answered deliberately and nothing is volunteered by accident. It protects privilege: once you retain a tax attorney, your conversations with them are generally privileged, while conversations with the accountant who prepared the return generally are not, and that accountant can be called as a witness. And it keeps the exit in view, whether that is agreement, an appeal within the IRS, or, when it becomes necessary, litigation.

Where an audit surfaces a problem the examiner has not yet found, the analysis shifts to managing criminal exposure while the civil examination continues. That is an eggshell audit, and it is handled differently from the start.

How we handle an examination

1. Review the notice and the return, and identify what the IRS is really testing.
2. Set the ground rules with the examiner: what will be produced, in what form, and by when.
3. Assemble the records, reconstruct what is missing, and prepare you for any interview.
4. Argue the adjustments, negotiate penalties, and preserve the appeal rights that matter.
5. If the result is wrong, take it to Appeals or to court. Closed examinations can sometimes be reopened through audit reconsideration.