Few envelopes cause as much anxiety as one stamped “Internal Revenue Service — Official Business”. When you open it and see the words “Notice of Audit”, it’s natural to worry about what went wrong. But here’s the truth: being audited doesn’t always mean you did something illegal or unethical. In fact, most audits result from automated data mismatches or statistical red flags, not fraud. Understanding why your return was selected, what the IRS looks for, and how to respond can make the difference between a simple clarification and a costly tax assessment.
📘 Official IRS References: Publication 556 — Examination of Returns, Appeal Rights, and Claims for Refund
How IRS Audit Selection Really Works?
The IRS reviews millions of returns each year using two key scoring systems:
- DIF (Discriminant Inventory Function): Evaluates statistical “normalcy” of your return.
- UIDIF (Unreported Income DIF): Estimates potential unreported income by comparing spending patterns, deposits, and industry averages.
Each return receives a numeric risk score. Higher scores are more likely to be manually reviewed by an IRS examiner.
💡 Insight: A “high DIF score” doesn’t automatically mean fraud — it means your return’s numbers differ from typical taxpayers in your income group or occupation.
Some Examples of Common IRS Audit Triggers
| Potential Audit Trigger | Why It Raises Red Flags? |
|---|---|
| High income with low reported tax | IRS expects higher tax liability based on earnings. |
| Excessive deductions | Especially charitable, home office, or mileage claims. |
| Schedule C businesses | Self-employed returns are common audit targets. |
| Mismatched 1099s or W-2s | Computer mismatch between taxpayer and third-party reporting. |
| Cryptocurrency transactions | IRS now cross-references digital asset trades. |
| Offshore accounts | FATCA data automatically flags unreported accounts. |
Types of IRS Audits Explained
There are different types of IRS audits.
| Type of Audit | How It Works? | Attorney Guidance |
|---|---|---|
| Correspondence Audit | Conducted entirely by mail; IRS requests specific documents. | Have attorney review before submission to limit scope. |
| Office Audit | Meeting at an IRS office; examiner reviews deductions or income. | Attorney should attend and handle verbal explanations. |
| Field Audit | IRS agent visits your home or business. | Always involve legal counsel; field audits can expand rapidly. |
| Taxpayer Compliance Measurement Program (TCMP) | Full income verification audit used for data collection. | These audits are rare but highly invasive — legal defense required. |
📘 Reference: Publication 556 — Examination of Returns
What the IRS Looks for in an Audit?
The IRS examines, to name a few:
- Income accuracy: Do reported figures match 1099s, W-2s, and bank records?
- Deduction legitimacy: Are expenses ordinary, necessary, and properly documented under IRC §162?
- Credit eligibility: Did you meet the conditions for EITC, child tax credit, or education credits?
- Lifestyle vs. income: Does spending exceed reported income (a “lifestyle audit”)?
- Recordkeeping: Are logs, receipts, and invoices available?
Your Rights During an IRS Audit
Under the Taxpayer Bill of Rights, you are legally entitled to:
- Professional and courteous treatment
- Representation by an attorney or CPA
- Only provide information relevant to the audit
- Appeal decisions within the IRS
- Challenge the IRS in U.S. Tax Court
💡 Important: Never meet the IRS alone. A tax attorney ensures compliance without oversharing — protecting you from accidentally waiving rights or admitting liability.
📘 Reference: Publication 1 — Your Rights as a Taxpayer
Why Legal Representation Matters?
- Protects your statements: Anything you say to an IRS agent can be used in later proceedings.
- Restricts audit scope: The IRS cannot request unlimited information — your attorney ensures focus.
- Communication: Your attorney communicates directly with the IRS examiner, so you don’t have to.
- Negotiates settlements: Experienced counsel can reduce penalties or propose audit reconsideration.
- Prepares appeals: Legal professionals preserve all appeal rights from the beginning.
💡 Advantage: Attorneys can manage legal exposure, file appeals, and stop collection after an adverse audit.
📘 Reference: Form 2848 – Power of Attorney
Stay Calm — Get Representation! Contact our firm today for a consultation.
An IRS audit doesn’t automatically mean you’re in trouble. It means the IRS needs clarification — and that’s where strategy matters most. The right tax attorney can turn a stressful audit into a controlled, defensible process — protecting your finances, your reputation, and your peace of mind.
Contact Pelham PLLC today to schedule a confidential audit defense consultation. Our IRS defense attorneys will:
- Review your audit notice and transcripts,
- Identify your risk areas,
- Handle all IRS communication on your behalf, and
- Protect you from overreach or misinterpretation of your records.
Don’t face the IRS alone — let us stand between you and the government.
FAQs
What’s the first thing I should do after getting an audit letter?
Contact a tax attorney immediately. Do not call the IRS directly or send unreviewed documents.
Can audits turn criminal?
Yes, if the examiner suspects fraud. Your attorney will identify warning signs and prevent escalation to IRS Criminal Investigation.
Can I appeal if I disagree with the IRS findings?
Yes, through the IRS Office of Appeals or U.S. Tax Court within specified deadlines.
Will the IRS audit future returns?
Possibly.
