Why did the IRS audit you? And what to expect next.
The IRS uses a secret algorithm to select tax returns for audit, but this algorithm has never been fully disclosed. This makes it difficult for taxpayers to understand how the IRS identifies returns for scrutiny. Even though the algorithm’s disclosure could be helpful for taxpayers to ensure they comply with the IRS’s criteria, the service is unlikely to release this information in order to prevent misuse. However, the IRS has released a few methods that they use to identify questionable returns, which may explain why some returns are selected for audit.
The Internal Revenue Service (IRS) employs different methods to choose tax returns for review. Some returns are selected randomly based on a statistical formula. The agency’s automated system compares your return to “norms” derived from audits of a random sample of similar returns, which are part of the National Research Program. This helps IRS to update its selection process. Other returns are selected for audit if they involve issues or transactions with other taxpayers like business partners or investors, whose returns were also selected for audit.
How will your audit end?
An audit can be concluded in three ways:
No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
Agreed: an audit where the IRS proposed changes and you understand and agree with the changes.
Disagreed: an audit where the IRS has proposed changes and you understand but disagree with the changes.
If you have been notified of an audit