IRS Audit: What to Expect and How to Prepare

Receiving notice that the IRS wants to examine your tax return can be intimidating. However, an IRS audit does not automatically mean you have done anything wrong. In many cases, audits are simply a review process designed to verify information reported on a tax return.

Understanding what to expect and how to prepare can help reduce stress and improve your chances of a successful outcome.

What Is an IRS Audit?

An IRS audit is a review of an individual’s or business’s financial records to verify that income, deductions, credits, and other tax items were reported accurately.

Audits can occur for a variety of reasons, including random selection, mismatched information, unusually large deductions, or issues identified through IRS data analysis.

Common Reasons Tax Returns Are Audited

While anyone can be audited, certain factors may increase the likelihood of examination:

• Large charitable deductions
• Significant business expenses
• High-income tax returns
• Unreported income
• Cash-intensive businesses
• Excessive losses reported year after year
• Mathematical or reporting errors

The IRS uses automated systems to identify returns that may warrant further review.

Types of IRS Audits

Correspondence Audit

The most common type of audit is conducted through the mail. The IRS requests documentation supporting specific items on a return.

Office Audit

Taxpayers meet with an IRS examiner at a local IRS office to discuss certain areas of the tax return.

Field Audit

The most comprehensive type of audit. An IRS agent visits a taxpayer’s home, business, or representative’s office to review records and financial information.

What Documents Should You Gather?

If you receive an audit notice, begin gathering all supporting records related to the items being reviewed.

Examples include:

• Tax returns
• W-2s and 1099s
• Bank statements
• Receipts
• Business expense records
• Mileage logs
• Charitable contribution records
• Property records

Organized documentation can significantly improve the audit process.

Your Rights During an Audit

Taxpayers have important rights when dealing with the IRS.

These include:

• The right to professional representation
• The right to privacy and confidentiality
• The right to understand why information is being requested
• The right to appeal certain audit findings

Many taxpayers choose to work with a tax professional who can communicate directly with the IRS on their behalf.

Common Audit Mistakes to Avoid

When facing an audit, avoid these common mistakes:

• Ignoring IRS correspondence
• Missing deadlines
• Providing unnecessary information
• Guessing when answering questions
• Failing to maintain documentation

Responding carefully and professionally is often the best approach.

Can an Audit Be Resolved Favorably?

Yes. Many audits conclude with little or no additional tax owed. Others may result in adjustments that can often be negotiated or appealed when appropriate.

The outcome largely depends on the facts, documentation, and how effectively the taxpayer responds to the examination.

Final Thoughts

An IRS audit can feel overwhelming, but preparation and proper guidance can make the process much more manageable. Understanding your rights, maintaining accurate records, and responding promptly are key to achieving the best possible outcome.

If you have received an IRS audit notice or need representation before the IRS, contact Petry Advisory at (713) 859-8000 to discuss your options.

---

References

Internal Revenue Service (IRS). “IRS Audits.” https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits

Internal Revenue Service (IRS). “Publication 1: Your Rights as a Taxpayer.” https://www.irs.gov/forms-pubs/about-publication-1

Taxpayer Advocate Service. “Taxpayer Bill of Rights.” https://www.taxpayeradvocate.irs.gov