A tax audit happens when the IRS decides to examine your tax return to determine whether you have accurately reported your income, expenses, and credits. The IRS accepts most tax returns as filed; however, some returns are chosen for auditing. The IRS notifies you if your return is to be audited. You are told which portions of your latest or earlier tax return(s) are to be examined and which records you will need to present.

Your tax audit may take place:

    --    By mail

    --    In your home

    --    At your place of business

    --    At an IRS office

    --    At the office of your attorney, account, or agent who is enrolled to practice before the IRS.

Your return can be chosen for a tax audit in a variety of ways:

    --    Random sampling

    --    Computerized screening

    --    Income document matching program.

A computer program called the Discriminant Inventory Function (DIF) System assigns a numeric score to each individual tax return after processing. A high DIF score indicates that an audit of your return has a high probability of resulting in a change to your tax liability. An income document matching program may select your return for a tax audit if your W-2 or 1099 forms do not match the information on your return.

Other reasons why your return may be selected for a tax audit include:

    --      Your questionable treatment of a specific item on your return

    --      An IRS study of how a segment of the population handles a specific tax issue

You can learn more about how tax audits happen in IRS Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.