Understanding the IRS Audit Process: What Happens If You Get Audited
“Audit” is a word that can strike fear into the hearts of taxpayers. But understanding how the IRS audit process actually works can ease much of that anxiety.
The good news: your actual chances of facing an IRS audit are low. According to the most recent IRS Data Book, the overall audit rate for individual tax returns sits at roughly 0.2%–0.5%, depending on the measurement period. And being selected for an audit does not necessarily mean the IRS suspects wrongdoing — the IRS describes an audit simply as a formal review of a tax return to confirm that information is reported accurately and in accordance with current tax law.
IRS Audit Rates by Income Level
While overall audit rates are low, the chance of being audited rises significantly with income. According to recent IRS data:
- Taxpayers earning under $200,000 generally face audit rates well under 1%.
- Taxpayers earning between $1 million and $5 million face audit rates of around 1.6%–8%.
- Taxpayers earning between $5 million and $10 million face audit rates of roughly 3%–14%.
- Taxpayers earning over $10 million face audit rates as high as 8%–20%.
The pattern remains consistent with historical trends: higher earners are audited at substantially higher rates than the general taxpayer population.
Source: Internal Revenue Service Data Book (most recent available edition)
How Does the IRS Select Returns for Audit?
The IRS uses three main methods to select returns for audit:
1. Random Selection
Some returns are chosen at random, based on the results of a statistical formula.
2. Information Matching
The IRS compares reports submitted by payers — including W-2 forms from employers and 1099 forms from banks and brokerages — against the returns filed by taxpayers. Returns with information that doesn’t match may be flagged for further examination.
3. Related Examinations
Some returns are selected for audit because they involve transactions or issues connected to other taxpayers whose returns are already under examination.
How Far Back Can the IRS Audit?
Generally, the IRS audits returns within three years of filing. If it identifies substantial errors, it can extend that window further — though the IRS typically does not go back more than six years, even in cases involving significant discrepancies.
What Happens During an IRS Audit?
Contrary to popular perception, most IRS audits don’t involve face-to-face meetings with agents. The majority of audits are conducted by mail through correspondence, with a smaller share involving in-person interviews. Correspondence audits are typically reserved for more straightforward issues, while field audits are used for larger or more complex cases.
Tax Practices That May Reduce Your Audit Risk
Sound tax practices can help lower the likelihood of being selected for an audit:
- Provide Complete Information. Missing Social Security numbers — including those for dependent children and ex-spouses — are among the most commonly overlooked details.
- Avoid Math Errors. When the IRS identifies a math error on a return, it assesses the issue and sends a notice, bypassing its normal deficiency procedures.
- Match Your Statements. The numbers reported on your W-2 and 1099 forms must align with your tax return. Mismatches can trigger a flag for audit.
- Don’t Repeat Past Mistakes. The IRS retains records of previously audited returns and may check to confirm that past errors haven’t recurred.
- Keep Complete Records. Thorough recordkeeping won’t necessarily reduce your audit chances, but it can make responding to IRS documentation requests significantly easier.
Frequently Asked Questions
What happens if you get audited by the IRS?
An IRS audit is a formal review of your tax return to verify that reported information is accurate and complies with current tax law. Most audits are conducted through the mail rather than in person, and being audited doesn’t automatically mean the IRS suspects wrongdoing.
How does the IRS select returns for audit?
The IRS selects returns using three primary methods: random selection based on a statistical formula, information matching against W-2s and 1099s submitted by employers and financial institutions, and related examinations tied to other taxpayers already under audit.
How far back can the IRS audit your tax returns?
The IRS generally audits returns within three years of filing. If substantial errors are found, this window can be extended, though the IRS typically does not go back further than six years.
What can I do to lower my chances of an IRS audit?
Providing complete information (including Social Security numbers), avoiding math errors, ensuring your W-2 and 1099 forms match your return, and keeping thorough records can all help reduce your audit risk.
Does income level affect my chances of being audited?
Yes. Audit rates rise substantially with income. Taxpayers with income over $1 million face audit rates many times higher than those with more modest incomes, while the overall audit rate across all individual returns remains under 1%.
Working with a fee-only fiduciary financial planning team in Fort Myers and Southwest Florida can help you stay organized and prepared, whether you’re navigating routine tax filing or responding to an IRS inquiry.
