The IRS performs audits on tax returns to determine if the amounts listed on the returns are correct. Determining the correctness of the amounts listed on your return will usually require you to send the IRS supporting documentation such as receipts, bank statements or invoices. Once a decision is made by the IRS, it will send you a copy of its audit determination to which you may agree or disagree. If you agree, you check the box labeled "agree" and pay any tax owed. If you disagree, then you have the option of appealing the IRS decision.
How It Works
The IRS uses a computer scoring system called Discriminate Function System (DIF) to score your return against those of similarly situated taxpayers. Taxpayers with similar filing situations tend to receive similar refunds as they take advantage of similar deductions and credits. So if you file head of household, the scoring system will automatically compare your return with other head of household filers with similar numbers of exemptions and income. If your score is high, then your return may be pulled for an audit. DIF doesn't exempt you from audit consideration because you've been audited in the last two years.
In addition to DIF, some taxpayers are selected for audits because the income information received by the IRS doesn't match the income listed on their tax returns. If the IRS receives additional W-2s or 1099s not listed on your return, these inconsistencies could result in your being audited. Again, whether or not you were previously audited in the last two years will not make a difference.
If you disagree with an audit decision or believe that you have been otherwise treated unfairly by the IRS, you have the right to request an appeal within the IRS or Tax Court. You have 30 days from the date of the audit decision to appeal.