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two women in an irs audit meeting

How Does an IRS Audit Work?

Lana Dolyna, EA, CTC
Lana Dolyna, EA, CTC

Senior Tax Advisor

Table of Contents

Pro Tip for Avoiding IRS Audits

Good recordkeeping is the foundation for keeping your taxes free of headaches, and this includes IRS audits.

By keeping detailed records, and the ability to easily locate and reference them, can prevent you from being audited in the first place. In the event your tax return is selected for an audit regardless, your records can ease the audit process as quickly and painlessly as possible.

What You Should Know About the IRS Audit Process

How will the IRS conduct my audit?

The IRS will conduct your audit through the mail, also known as a correspondence audit, or through an in-person interview.

In-person audits are office audits if they are held at your regional IRS office, or a field audit if they take place in your home, business, or your accountant or representative’s office.

Regardless of which type the agency requests, the IRS will always notify you by mail that you are under audit. You will receive IRS Letter 2205, the short form audit notice, or IRS Letter 2202 which is the long version.

What do I need to provide?

When you receive your audit notice, it will specify which tax years and specific items and areas of your tax return are being examined. If you received the long version of the audit notice, page 3 will specify the tax year under audit and there is a list of common audited items from Schedules C and F, plus other tax forms and credits. There is also a blank space where the IRS officer can enter examination requests that do not fit this template. This page will help you determine which documents you should send to the IRS for audit defense.

The IRS has a list of documents they commonly request, which includes receipts, insurance reports, medical and dental records, mileage logs, and other documents pertaining to specific tax deductions and benefits you’ve claimed.

You will need to provide the most relevant documents that prove your claims. You do not need to provide more information than is necessary.

How do I know if the IRS received my response?

When submitting documents by mail, you should always request a tracking number plus signature confirmation to ensure that an IRS employee received it.

The US Postal Service offers delivery confirmation and you can request a return receipt that your post office will send to you, proving the time and date the IRS received your documents.

What are my rights during an audit?

Under the Taxpayer Bill of Rights, you have the following rights when under audit:

How does the IRS close out an audit?

You will receive IRS Notice CP22E in the mail notifying you that your audit has concluded.

If you agree or disagree, you need to respond to the notice accordingly.

There are three results (conclusions) of an IRS audit:

You will receive IRS Notice CP22E in the mail notifying you that your audit has concluded. There are three results (conclusions) of an IRS audit:

You understand and agree with the findings of the IRS audit and the proposed changes.

You understand but disagree with the findings of the IRS audit and the proposed changes.

What happens when you agree with the audit findings?

If you agree with the outcome of your audit, you will need to sign the examination report.

If you owe money as a result of the audit, and cannot pay in full immediately, you will need to determine whether an installment agreement or offer in compromise is the best solution.

What happens when you disagree with the audit findings?

If you disagree with the outcome of your audit, you can begin by requesting a conference with an IRS manager (usually within your regional IRS office).

If the manager or a mediator cannot resolve the problem, you can file with the IRS Office of Appeals. You must do so within 30 days of the date on your CP22E notice.

Who should I hire for help with an IRS tax audit?

Qualified representatives for IRS audits are tax attorneys, CPAs, and Enrolled Agents. If you are under audit, representing yourself is an option but better outcomes are often achieved with professional representation that specializes in audit representation services and related practice areas.

Tax Shark’s tax resolution and audit defense specialists have decades of experience negotiating audit outcomes with the IRS.

FAQs

How often can the IRS audit you?

The IRS can examine any tax year that an agent deems suspect, or flagged through their computer screening. However, the IRS can only examine up to the past six tax years and tends to audit suspicious items as quickly as possible.

When does an IRS tax audit become criminal?

Generally, IRS audits and their findings are civil matters.

They can become criminal investigations if the audit findings are deemed to be fraud, opposed to errors. If the IRS receives any information from law enforcement agencies, US Attorneys’ offices, or the general public due to unrelated investigations, an audit is more likely to become a criminal investigation.

Violations of the Bank Secrecy Act and willful violations of the Internal Revenue Code will escalate an audit to a criminal investigation, with a special agent and IRS Chief Counsel criminal tax attorneys instead of civilian IRS staff from the taxpayer’s regional office.