An audit occurs when the Internal Revenue Service selects your income tax return for review. Sometimes this audit can occur years after you filed your return, however, they are typically conducted within a few months of filing. During the audit, the IRS will analyze your return and supporting documentation to ensure that all entries are accurate. Since most audits occur after the IRS issues refunds, you will probably still receive your refund, even if the IRS selects your return for an audit.
Due to the fact that auditing can be a long, protracted process, the odds are good that you will still get any refunds owed to you regardless of whether or not you are later selected for an audit.
Audit Selection Basics
The IRS selects returns for audit using several methods. The IRS chooses some returns for audit based on computer algorithms that score returns based on their potential for inaccuracies. The IRS also audits returns that contain information different from the information reported on other forms the IRS receives regarding your income, such as 1099s or W-2s. Finally, the IRS audits the returns of certain large corporations each year, regardless of the return's perceived accuracy.
Understanding The Auditing Process
If the IRS selects your return for audit, you will complete the process either by mail or in person. If the IRS assigns you an in-person audit, it can take place at your home, your accountant's office or an IRS office. In the event the IRS designates that it will conduct the audit by mail, you must mail any relevant paperwork to the IRS in a timely manner. The audit notification you receive will indicate the paperwork needed for the review.
Exploring Possible Outcomes
After the auditor reviews your information, he may suggest certain changes to your tax return. If you agree to these suggestions, and feel they are valid, the auditor will amend your return accordingly. Depending on the nature of the changes, this can mean you may owe additional money to the IRS, but you could also receive a refund of tax you have already paid. If the auditor suggests no changes, then you break even and you will neither owe nor receive any additional funds. In the event you disagree with the changes suggested, you can appeal the audit in court.
Processing IRS Refunds
Although most taxpayers will receive their refunds long before the IRS begins choosing returns for audit, the IRS may hold your refund if your return includes certain obvious errors, such as impossible deductions or omissions of documented income. If you receive your refund, and the IRS later chooses your return for audit, you may need to return a portion of the refund, depending on the audit's outcome.
- The Motley Fool: Top Five Audit Myths
- IRS: IRS Audits
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- National Association of Enrolled Agents. "What is National Tax Practice Institute?" Accessed May 4, 2020.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.