Tax Audit Basics and Your Rights

An IRS audit is a review of your books, accounts, and financial records. It checks that your return reports the correct amounts under the tax law. Getting selected does not always mean there is a problem. The IRS uses several selection methods. IRS: Audits

Why a return can be selected

Some returns are selected by a statistical formula. The IRS compares a return with "norms" from audits of a random sample of similar returns, as part of its National Research Program. Other returns are selected because they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected. IRS: Audits

An amended return goes through screening too, and it can be selected for audit. Filing an amended return does not change how the original return was selected. A refund is not necessarily a trigger for an audit. IRS: Audits

How you are notified

The IRS notifies you by mail. It does not start an audit by telephone. The letter gives the contact information and the instructions for your audit. IRS: Audits

Mail audits and in-person audits

Some audits are done by mail. The letter asks about specific items, such as income, expenses, or itemized deductions. The IRS then sends a written list of the documents it wants. Other audits are in-person interviews. These can be held at an IRS office, or at your home, your business, or your representative's office. If you have too many records to mail, you can ask for a face-to-face audit. IRS: Audits

In an interview, the examiner explains the reasons for any proposed changes. You can ask that the examination take place at a reasonable time and place that is convenient for you and the IRS. IRS: Publication 1

Respond by the due date

If you do not respond by the date shown on the letter, the IRS completes the audit and sends you a report with its proposed changes. IRS: Audits

For a mail audit, send your written request for more time by fax or by mail, to the number or address shown on the letter. The IRS can ordinarily grant one automatic 30-day extension. For an in-person audit, contact the assigned auditor, or the auditor's manager if needed. IRS: Audits

With any delivery service, ask for confirmation that the IRS received your response. If you received a notice of deficiency by certified mail, the IRS cannot grant more time to send supporting documents. It also cannot extend the 90 days you have to petition the U.S. Tax Court. IRS: Audits

How far back the IRS can look

Generally, the IRS can include returns filed within the last three years. If it finds a substantial error, it can add years. It usually does not go back more than six years. Most audits cover returns filed in the last two years. IRS: Audits

The IRS may ask you to extend the time it has to assess tax. You do not have to agree. If you do not agree, the auditor must make a decision based on the information provided. IRS: Audits

Your rights

Publication 1, Your Rights as a Taxpayer, explains your rights and the examination, appeal, collection, and refund processes. It lists the ten rights in the Taxpayer Bill of Rights. In short, you have the right to:

be informed about what you must do, and about IRS decisions on your account;
receive quality service, and speak to a supervisor about inadequate service;
pay no more than the correct amount of tax;
challenge the IRS position and be heard;
appeal most IRS decisions in an independent forum;
know the maximum time to challenge the IRS position, the maximum time the IRS has to audit or collect, and when an audit is finished;
privacy: IRS action must follow the law and be no more intrusive than necessary;
confidentiality of the information you give the IRS;
retain an authorized representative, and get help from a Low Income Taxpayer Clinic if you cannot afford one;
a fair and just tax system that considers your facts, circumstances, and ability to pay.

The current revision of Publication 1 on IRS.gov is Rev. 9-2017. The Spanish edition is Publicación 1SP, Rev. 10-2017. IRS: Publication 1 IRS: Taxpayer Bill of Rights

How an audit ends

An audit can end in three ways. It can end with no change. It can end as agreed, when you understand and agree with the proposed changes and sign the report. Or it can end as disagreed, when you understand the changes but do not agree with them. If you disagree, you can request a conference with an IRS manager, use mediation, or file an appeal if enough time remains on the statute of limitations. IRS: Audits

Records to keep

The law requires you to keep the records you used to prepare your return for at least three years from the date you filed it. IRS: Audits

Steps to take

Read the letter, and note the due date and the contact information.
Gather the records that support each item the letter asks about.
Send your response in writing, and keep proof that the IRS received it.
Ask for more time in writing before the due date, if you need it.
If you disagree with the results, read the report and ask about your options.

General information, not advice about your return.

Sources: Sources: IRS, Audits (https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits); IRS, Publication 1, Your Rights as a Taxpayer, Rev. 9-2017 (https://www.irs.gov/pub/irs-pdf/p1.pdf); IRS, Taxpayer Bill of Rights (https://www.irs.gov/taxpayer-bill-of-rights) This is general information, not advice about your specific return.

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