IRS Audit Procedures

What Triggers an IRS Audit?

Discrepancies in reported income (e.g., W-2, 1099 mismatch)
High deductions compared to income
Large charitable contributions
Random selection by statistical formulas
Related party audit (e.g., business partner or investor under audit)

Types of IRS Audits

Correspondence Audit: By mail; focuses on specific items (e.g., receipts, deductions)
Office Audit: In-person interview at IRS office
Field Audit: IRS visits taxpayer’s home/business

IRS Audit Process

1. Audit Notice (Letter 566/525) – Explains scope and request for documentation
2. Information Request (IDR) – IRS will list documents needed (e.g., bank statements, receipts, books)
3. Interview (if applicable) – Questions about income, expenses, lifestyle, business practices
4. Findings & Report (Form 4549) – IRS explains proposed adjustments
5. Response Options:
- Agree and pay tax
- Disagree and request Appeal or Audit Reconsideration

Common Documents Requested

Tax returns (Form 1040, business forms)
W-2s, 1099s, K-1s
Bank statements
Receipts for deductions (medical, donations, mileage)
Business income and expense logs
Real estate closing statements

Your Rights During an Audit

Right to professional representation
Right to appeal within IRS and to Tax Court
Right to record interviews
Right to be treated fairly and respectfully

Best Practices

Keep records for at least 3 years (7 years for major losses)
Respond promptly and respectfully
Be organized and only provide what is requested
Consult a tax professional if complex