Audit

A tax audit is an examination of your return by the IRS to verify that your reported income, deductions, and credits are accurate and comply with tax law. Only about 0.4% of individual returns are audited in a typical year, though certain factors increase the likelihood — such as high income, large charitable deductions relative to income, significant Schedule C losses, or unreported 1099 income.

There are three main types of audits: correspondence audits (by mail, for simple issues like missing documentation), office audits (at an IRS office, for moderately complex issues), and field audits (at your home or business, for the most complex cases). Correspondence audits are by far the most common.

If you are audited, you have the right to representation (by a CPA, enrolled agent, or tax attorney), the right to appeal any findings you disagree with, and the right to know why the IRS is asking for information. The IRS generally has three years from the filing date to audit a return, extended to six years if there is substantial understatement of income (more than 25%) and indefinitely for fraud or failure to file.