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August 09, 2022 - 2 min read

What is an audit?

An audit is an official examination of your individual or your company’s tax records and documentation. Audits, albeit scary, are an important activity of the IRS in order to ensure a fair tax system for all citizens.

Audits can happen when either the IRS thinks there may be an issue with your tax information and provided documentation, or you can be selected at random, with no fault of your own.

If you are selected for an IRS audit, you are notified by mail. You are also notified of the records the IRS wishes to examine. IRS audits happen either in person - at an IRS office or your home/place of work, or by mail.

If your IRS audit is conducted through the mail, you will need to mail all requested documentation regarding your tax return to an IRS office. If the audit is conducted in person, bring the needed documents with you.

The IRS generally audits tax returns no older than three years, but in certain circumstances, they might go back as much as six years. Generally, the IRS will have detected significant errors in your recent tax returns, in order to go back and examine older returns too.

The outcome of an IRS audit can go three ways:

  • You have provided the required documentation and proof, and the IRS agrees with your audited tax returns. There are no changes to your tax.
  • After the audit, the IRS proposes changes to your tax return, to which you agree - you might have to pay back some tax.
  • The audit concludes with changes that the IRS offers, to which you do not agree. You can then request a conference with an IRS manager, file an appeal, or make use of the mediation the IRS offers.

In case you are audited by the IRS, You will need to provide documents you used to file your tax return in the first place. These documents might include receipts, logbooks, legal papers, employment documents and more. See the full IRS list of documents they might request. You will also need to provide a transactions summary.

For example, if you are audited for your mileage deductions that you claimed on the cents per mile basis, you will need to show your mileage logbook where you logged your personal and business mileage throughout the year.

If you claimed mileage on an actual expenses basis, the IRS audit will require you to provide not just your logbook with recorded mileage, but all receipts and invoices related to owning and maintaining your vehicle. Learn more about the records you should keep for your mileage deductions and the IRS mileage log requirements.

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FAQ

The IRS can audit your last three years’ tax returns, but in special circumstances, such as detecting serious mistakes in recent tax returns, it can audit back as far as six years.
An IRS audit can be triggered either by mistakes in your tax returns, such as not reporting all of your income, unusual business expenses, or claiming types of tax deductions for the first time. An IRS audit can also be triggered at random through no fault in your tax returns, but that’s a slim chance.
An official IRS audit letter will include a statement that your tax return will be audited, what the reason is for the audit and the documents you will need to provide. An IRS audit letter will also clearly state your Social Security number or your taxpayer identification number, name and address. The letter will also include contact information you can use to get in touch with the IRS.

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