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What Happens If the IRS Audits Me?
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What Happens If the IRS Audits Me?

What Happens If the IRS Audits Me?

Fecha:

Getting a letter from the IRS can be scary. But audits are far less common and less dramatic than most people think. 

Understanding what triggers an audit, what the process looks like, and how to respond can take away much of the anxiety.

Quick Answer

IRS audits are rare. For fiscal year 2024, the IRS audited only about 0.5% of all tax returns (505,514 audits total). 

Of those, 77.9% were handled entirely by mail, while just 22.1% involved meeting with an IRS agent in person. If you're audited, the IRS will notify you by mail only (never by phone). 

Most audits simply ask you to provide documentation for specific items on your return. If your records support what you claimed, the audit closes with no change to your taxes.

 

 

What Is an IRS Audit?

An audit (also called an examination) is when the IRS reviews your tax return to verify that the information you reported is accurate according to tax law. The IRS may ask to see:

  • Income documents (W-2s, 1099s, bank statements)

  • Expense records and receipts

  • Proof of deductions and credits

  • Investment and financial records

  • Business records if you're self-employed

The goal is to confirm the amounts you reported are correct and to address any discrepancies (IRS, The Examination Process, Publication 3498-A).

 

 

How Common Are IRS Audits? (Fiscal Year 2024)

Overall Audit Rate

In fiscal year 2024, the IRS closed 505,514 tax return audits out of millions of returns filed. The overall audit rate is approximately 0.5%, or about 1 in 200 returns (IRS, Compliance Presence, 2024 Data Book).

Audit Rates by Income Level (Tax Year 2019, Most Recent Complete Data)

The IRS audits high-income taxpayers at significantly higher rates:

  • Under $25,000: 0.3% to 0.4% audit rate

  • $25,000 to $49,999: 0.2% audit rate

  • $50,000 to $199,999: 0.1% audit rate

  • $200,000 to $499,999: 0.2% audit rate

  • $500,000 to $999,999: 0.6% audit rate

  • $1 million to $5 million: 1.6% audit rate

  • $5 million to $10 million: 3.1% audit rate

  • $10 million or more: 11.0% audit rate

If you earn under $500,000 per year, your chances of being audited are very low (IRS, Compliance Presence, Table 17).

Types of Audits (Fiscal Year 2024)

Correspondence audits (77.9% of audits):

  • Conducted entirely by mail

  • IRS requests specific documentation

  • You respond by mailing or uploading documents

  • Resulted in $6 billion in recommended additional tax

Field audits (22.1% of audits):

  • Conducted in person at your home, business, or IRS office

  • More comprehensive and in-depth

  • Typically for complex issues or business returns

  • Resulted in $23 billion in recommended additional tax

Most taxpayers will never face an in-person audit (IRS, Compliance Presence, 2024 Data Book).

 

 

What Triggers an IRS Audit?

The IRS uses computerized systems to select returns for examination. Common triggers include:

Large or Unusual Losses

  • Business losses disproportionate to your income

  • Repeated business losses year after year (hobby loss rule concerns)

  • Rental losses that seem excessive or inconsistent with industry standards

The IRS wants to ensure your business is a legitimate profit-seeking activity, not a hobby (IRS, IRS Audits).

Uncommon or Large Deductions

  • Home office deductions that seem inflated (claiming living spaces as business space)

  • Unusually high medical expenses

  • Large miscellaneous deductions (suspended for tax years 2018 through 2025)

  • Excessive meal and entertainment expenses

  • Unreasonable travel costs

Large Charitable Contributions

  • Donations that are very high relative to your income

  • Non-cash donations without proper documentation

  • Failure to file Form 8283 for non-cash donations over $500

Cash-Intensive Businesses

  • Businesses where income is easy to hide (taxi services, hair salons, car washes, laundromats, restaurants)

  • The IRS has developed specialized guides for examining cash-based businesses

Cryptocurrency Transactions

  • The IRS is focusing increased attention on crypto transactions

  • Failure to report crypto sales, trades, or income triggers scrutiny

  • Question about virtual currency appears on Form 1040

Foreign Bank Accounts and Income

  • Failure to report foreign bank accounts (FBAR requirements)

  • Unreported income from foreign sources

  • Missing forms (Form 8938, FinCEN Form 114)

Information Reporting Mismatches

  • Discrepancies between what third parties report (W-2s, 1099s) and what you claim

  • The IRS Automated Underreporter Program flags these automatically

  • In fiscal year 2024, the program closed 1.2 million cases and resulted in $7.7 billion in additional assessments (IRS, Compliance Presence, 2024 Data Book)

 

 

How Will You Be Notified of an Audit?

The IRS will always notify you by mail. You will never be contacted about an audit by phone, email, or text. 

If someone calls or emails claiming to be from the IRS about an audit, it's a scam (IRS, IRS Audits).

The audit letter will include:

  • Your name, taxpayer ID, and tax year under examination

  • Specific items on your return being questioned

  • Documentation requested

  • Deadline to respond (typically 30 days)

  • Contact information for the examiner

  • Instructions for responding

Common audit notification letters include Letter 566, Letter 2202, and Letter 3572 (Taxpayer Advocate Service, Audits by Mail, November 2024).

 

 

What to Do If You're Audited

Step 1: Read the Letter Carefully

Review the IRS letter to understand:

  • Which tax year is being examined

  • What specific items are being questioned

  • What documentation is requested

  • The deadline to respond

Compare the IRS's proposed changes to your original return to ensure you're starting from the same point.

Step 2: Gather Your Documentation

Collect records that support the items under examination. This may include:

  • Receipts

  • Bills and invoices

  • Canceled checks or bank statements

  • Legal papers (contracts, agreements)

  • Loan agreements

  • Logs, diaries, or calendars

  • Mileage logs

  • Medical records

  • Employment documents (W-2s, pay stubs)

  • Schedule K-1 forms

Organize your documents clearly and make copies for your records (IRS, The Examination Process, Publication 3498-A).

Step 3: Respond by the Deadline

For correspondence audits:

  • Mail or upload your documentation by the deadline (typically 30 days)

  • Include a cover letter explaining each document

  • Keep copies of everything you send

  • Consider using certified mail to confirm delivery

For office or field audits:

  • Bring organized documentation to your appointment

  • Be prepared to answer detailed questions about your finances

  • Consider hiring a tax professional (CPA, enrolled agent, or tax attorney) to represent you

  • Only provide information specifically requested. Don't volunteer additional details.

If you need more time, call the phone number on the letter before the deadline. The IRS can usually grant a one-time automatic 30-day extension (IRS, IRS Audits).

Step 4: Review the Outcome

After reviewing your documentation, the IRS will:

No change: Your return is accepted as filed. The audit closes with no additional tax owed. This happens when your documentation fully supports your return.

Agreed changes: The IRS proposes changes and you agree. Sign the agreement form and pay any additional tax, interest, and penalties. If you can't pay in full, discuss payment plan options.

Disagreed changes: You disagree with the IRS's findings. You have the right to appeal.

 

 

Can You Appeal an Audit?

Yes. If you disagree with the audit results, you typically have 30 days from the date of the letter to appeal to the IRS Office of Appeals (Taxpayer Advocate Service, Audits by Mail, November 2024).

How to Appeal

  1. Request an informal conference with the examiner's manager

  2. File a formal appeal with the IRS Office of Appeals in writing

  3. Include your reasons for disagreeing with the proposed changes

  4. Provide supporting documentation

If you still disagree after the appeals process, you can petition the U.S. Tax Court (typically within 90 days of receiving a Notice of Deficiency).

 

 

What to Do Now

  1. Don't panic if you receive an IRS letter. Not every IRS letter is an audit. The IRS also sends letters about balance due, refund changes, identity verification, processing delays, and routine questions.

  2. Respond promptly to all IRS letters. Missing deadlines can result in automatic assessments, penalties, and loss of appeal rights. Always respond by the deadline shown, even if just to request more time.

  3. Keep excellent records. Maintain receipts, invoices, and documentation for all income and deductions for at least three years. If you claim large deductions, keep records for six years or longer.

  4. Consider professional help for complex audits. If you're facing a field audit, have significant business income, or disagree with proposed changes, hire a CPA, enrolled agent, or tax attorney to represent you.

  5. Don't fear legitimate deductions. Don't skip claiming valid deductions (like home office expenses) just because you fear an audit. If you have proper documentation, claim what you're entitled to.

  6. Know your rights. The IRS Taxpayer Bill of Rights guarantees you the right to quality service, privacy, confidentiality, representation, and appeal. Review these rights at IRS.gov/taxpayer-bill-of-rights.

 

 

Common Mistakes to Avoid

  • Ignoring IRS letters. Failing to respond leads to automatic assessments, penalties, and potential liens or levies. Always respond by the deadline, even if you can't provide everything requested.

  • Panicking and paying without verifying. The IRS makes mistakes. Review proposed changes carefully and ensure they're correct before agreeing and paying. You have the right to disagree.

  • Providing more information than requested. Only answer the specific questions asked and provide only the requested documentation. Don't volunteer additional information that could raise new questions.

  • Throwing away old records. The IRS can audit returns filed within the last three years (six years if there's a substantial error). Keep tax records for at least six years.

  • Assuming every letter is an audit. The IRS sends millions of letters each year for routine matters like balance due notices, refund changes, and identity verification. Read carefully to understand what action is needed.

  • Going to an audit alone when you need help. Complex audits, especially field audits or those involving business income, benefit from professional representation. CPAs, enrolled agents, and tax attorneys can represent you before the IRS.

 

 

Resources and Forms You Can Check

IRS Publication 3498-A: The Examination Process (Examinations by Mail). Explains the correspondence audit process step by step. Available at IRS.gov/publications.

IRS Publication 556: Examination of Returns, Appeal Rights, and Claims for Refund. Comprehensive guide to audit procedures and appeal rights. Available at IRS.gov/publications.

IRS Publication 1: Your Rights as a Taxpayer. Explains the Taxpayer Bill of Rights. Available at IRS.gov/publications.

Form 2848: Power of Attorney and Declaration of Representative. Use this to authorize a tax professional to represent you before the IRS. Available at IRS.gov/forms.

Campus Correspondence Exam Document Upload Tool: Upload audit documentation electronically instead of mailing. Access at IRS.gov.

IRS Online Account: Check the status of your audit if your letter includes contact phone numbers 866-897-0177 or 866-897-0161. View under Records and Status tab. Create account at IRS.gov/account.

Taxpayer Advocate Service: Independent organization within IRS that helps taxpayers resolve problems. Call 877-777-4778 or visit TaxpayerAdvocate.IRS.gov.

Low Income Taxpayer Clinics (LITC): Free or low-cost help for taxpayers who can't afford representation. Find a clinic at TaxpayerAdvocate.IRS.gov/about-us/low-income-taxpayer-clinics-litc.

 

 

Bottom Line

IRS audits are uncommon. Only 0.5% of returns were audited in fiscal year 2024, and most were handled by simple mail correspondence. 

If you're selected for an audit, stay calm and respond promptly with organized documentation. Most audits close quickly with no change to your taxes when you have proper records. 

If you disagree with the results, you have the right to appeal. With the right approach and documentation, an audit doesn't have to be stressful.

 

 

Sources

IRS, IRS Releases Fiscal Year 2024 Data Book Describing Agency's Activities – Internal Revenue Service – Published May 2025 – https://www.irs.gov/newsroom/irs-releases-fiscal-year-2024-data-book-describing-agencys-activities 

IRS, Compliance Presence, 2024 Data Book – Internal Revenue Service – Published May 2025 – https://www.irs.gov/statistics/compliance-presence 

IRS, 2024 Internal Revenue Service Data Book (Publication 55-B) – Internal Revenue Service – Published May 2025 – https://www.irs.gov/pub/irs-pdf/p55b.pdf 

IRS, IRS Audits – Internal Revenue Service – Current as of 2025 – https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits 

IRS, Publication 3498-A, The Examination Process (Examinations by Mail) – Internal Revenue Service – Revised May 2021 – https://www.irs.gov/pub/irs-pdf/p3498a.pdf 

Taxpayer Advocate Service, Audits by Mail – Internal Revenue Service – Last updated November 4, 2024 – https://www.taxpayeradvocate.irs.gov/get-help/interacting-with-the-irs/audits-by-mail/ 

Taxpayer Advocate Service, What to Do if You Receive Notification Your Tax Return Is Being Examined or Audited – Internal Revenue Service – Published July 15, 2025 – https://www.taxpayeradvocate.irs.gov/news/tax-tips/receive-notification-tax-return-is-being-examined-or-audited/2025/07/ 

IRS, Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund – Internal Revenue Service – Current tax year – https://www.irs.gov/publications/p556 

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