IRS Audit
An IRS review of a taxpayer's financial information to verify that income, deductions, and credits are accurately reported.
What is IRS Audit?
An IRS audit is a formal examination of a taxpayer's accounts and financial information to ensure compliance with U.S. tax laws. Returns may be selected through random sampling, computer screening for statistical anomalies, or because related transactions with another audited taxpayer were flagged. The three main types are: correspondence audits (conducted by mail for minor issues), office audits (at a local IRS office), and field audits (an IRS agent visits the taxpayer's home or business). Audits can result in no change, an agreed adjustment, or a disputed assessment that may be appealed.
Example
A freelancer claims $35,000 in home-office and vehicle deductions against $60,000 in self-employment income. The IRS issues a correspondence audit letter requesting documentation. The taxpayer submits receipts and a mileage log. After review, the IRS accepts $28,000 in deductions and disallows $7,000, resulting in additional tax of roughly $1,400 plus interest.
Source: IRS — IRS Audits