Few phrases strike fear in the hearts of taxpayers like the words "IRS audit." Understanding how the auditing process works, though, can remove some of this fear. The good news: IRS audits follow a fairly strict formula. Once you know this formula, you can prepare yourself.
The IRS audit procedure starts when you receive an audit notification letter from the agency. This is an important piece of paper, so read it carefully. This letter will list the records that taxpayers will need during the audit. It's important to find these records; they will help you defend yourself during the audit.
IRS agents will handle your audit in a variety of ways. The agents may conduct an examination through mail, asking you to answer some fairly simple questions. If the agency has more significant concerns with your return, agency officials may interview you over the phone.
For serious tax issues, the IRS will interview you in person. This will either happen at your residence, office or at the nearest IRS office. You are allowed to have an attorney present.
Depending on the seriousness of the tax questions involved, an IRS audit may be resolved with a single interview or interviews that take place over several weeks or months.
According to the IRS, most audits end when taxpayers agree to pay back any taxes they owe, plus penalties. There are times when taxpayers don't agree with the IRS's findings. In such cases, taxpayers can file an appeal with the IRS, U.S. Claims Court, U.S. Tax Court or their local U.S. District Court.
Taxpayers have the right to continue appealing all the way to the U.S. Court of Appeals or Supreme Court level. These higher courts, though, would have to agree to take on the taxpayers' appeals.