How Does a Tax Audit Work

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How a Tax Audit Works

A tax audit is a review of your tax return by the tax authority to check for accuracy. The process begins with a notice, moves through document review, and ends with a determination that may result in additional tax, a refund, or no change.

Table of Contents

How a Tax Audit Works
How Tax Authorities Select Returns for Audit
Types of Tax Audits
The Step-by-Step Audit Process
What to Expect During an Audit
What Happens After the Audit

How Tax Authorities Select Returns for Audit

Tax authorities use several methods to choose which returns to examine:

Random selection — some audits are purely statistical and not tied to any perceived error.
Information matching — the authority compares your return against forms from employers, banks, and other third parties.
Related examinations — an audit of a business partner, investor, or other related party can trigger a review of your return.
High-income or high-deduction returns — unusually large deductions, losses, or offsets raise flags.

Types of Tax Audits

Audits vary by scope and format:

Type	What It Involves
Correspondence audit	You respond by mail with requested documents; no in-person meeting.
Office audit	You visit a local tax office to provide records and answer questions.
Field audit	An examiner visits your home or business to inspect records and operations.
Taxpayer compliance measurement program (TCMP)	A broad statistical audit that reviews many items on your return.

The Step-by-Step Audit Process

The typical audit follows a clear sequence:

The tax authority sends an official notice specifying the tax year, items under review, and the documents you must provide.

You gather records such as receipts, bank statements, contracts, and ledgers that support the disputed items.

You may meet with an examiner, either by mail, in an office, or on-site, to present your evidence and answer questions.

The examiner analyzes the information and proposes adjustments — additional tax, penalties, or interest — or confirms the original return was correct.

You receive a 30-day letter outlining the proposed changes. If you agree, you sign and pay; if you disagree, you can request an appeals conference or file a formal protest.

What to Expect During an Audit

Audits focus on specific items such as income reporting, expense deductions, credits, or asset classifications. The examiner may request bank records, invoices, or third-party confirmations. Being organized, responsive, and timely with document requests helps resolve the audit faster.

What Happens After the Audit

If the audit results in additional tax, interest and penalties are usually assessed from the original due date. You can agree and pay, or disagree and appeal through the tax authority's appeals division or, if necessary, take the case to tax court. If the audit finds no change, your return stands as filed.