What Is a Tax Audit? What Triggers One & What to Do

A tax audit begins when the IRS (or your state Department of Revenue) sends you a notice, usually months or even two years after you file. The notice explains which tax year is under review, which items the agency is questioning, and what documentation you must provide.

The IRS uses a computer scoring system called the Discriminant Information Function (DIF) to flag returns that differ significantly from statistical norms for similar taxpayers. High-income returns (over roughly \$200,000) are audited at higher rates because the potential revenue recovery is larger. Other common triggers include unusually large charitable deductions relative to income, reporting significant business losses year after year, round numbers on Schedule C (suggesting estimates rather than actual records), claiming the home-office deduction, having large cash transactions reported on Form 8300, and mismatches between income you report and the 1099s or W-2s third parties send to the IRS.

A correspondence audit often closes within three to six months if you provide clear documentation promptly. Office and field audits can last six months to over a year, especially if the examiner requests multiple rounds of documents or if you dispute findings and request supervisory review.

Read the notice carefully and note the response deadline—usually 30 days. Gather the specific documents requested: receipts, invoices, mileage logs, bank statements, or proof of charitable contributions.

You may handle a simple correspondence audit (proving a single deduction) on your own, but consider professional help if the audit covers business income and expenses, rental properties, stock basis calculations, or multiple years. A certified public accountant (CPA), enrolled agent (EA), or tax attorney can represent you before the IRS without you being present, and they know which documentation the examiner will accept and which arguments succeed on appeal.

How much does a tax audit cost?

The audit itself is free; the IRS does not charge a fee to examine your return. Your costs are the time spent gathering records, any professional fees if you hire a CPA, enrolled agent or attorney (typically \$150–\$500 per hour, though some charge flat rates for correspondence audits), and any additional tax, interest and penalties the IRS assesses if it changes your return.

Can you go to jail for a tax audit?

What happens if I can't pay the tax owed after an audit?

The IRS offers several payment options. You can request an installment agreement (monthly payments) online or by filing Form 9465; short-term plans (120 days or less) have no setup fee.

How do I know if an audit notice is real or a scam?

The IRS initiates audits by mailed letter—never by phone, email or text. Real notices are printed on IRS letterhead, include your taxpayer identification number, list a specific notice number (for example, CP2000, Letter 525 or Letter 566), and provide a telephone number and mailing address you can verify on IRS.gov.

Does amending a return increase audit risk?

What is the difference between an IRS audit and a state tax audit?

The IRS examines your federal income tax return (Form 1040 and related schedules); your state Department of Revenue or Taxation separately examines your state income tax return. The two agencies do not always communicate in real time, but many states receive federal audit results and may adjust your state return to match.