{"id":10982,"date":"2015-09-09T18:17:00","date_gmt":"2015-09-09T18:17:00","guid":{"rendered":"https:\/\/www.hrblock.com\/tax-center\/?p=10982"},"modified":"2022-08-10T11:23:35","modified_gmt":"2022-08-10T16:23:35","slug":"irs-audit-process","status":"publish","type":"post","link":"https:\/\/www.hrblock.com\/tax-center\/irs\/audits-and-tax-notices\/irs-audit-process\/","title":{"rendered":"You’re Being Audited By The IRS – How Bad is It?"},"content":{"rendered":"

Editor’s Note:<\/strong> At H&R Block, we work to help demystify the complex and confusing and help our clients wherever possible. So here\u2019s what you should do when you are being\u00a0audited, and when you should call in the experts (that\u2019s us).<\/em><\/p>\n

On a scale of 1 to 10 (10 being the worst), being audited by the IRS could be a 10. Audits can be bad and can result in a significant tax bill. But remember \u2013 you shouldn\u2019t panic. There are different kinds of audits, some minor and some extensive, and they all follow a set of defined rules. If you know what to expect and follow a few best practices, your audit may turn out to be \u201cnot so bad.\u201d<\/p>\n

A little background first. There are three types of IRS audits: mail, office and field audits.<\/p>\n

1. Mail audits<\/h2>\n

Mail audits are fairly routine. They require you to mail in documents responding to specific questions or requests for information from the IRS. Mail audits make up 77% of all audits.<\/p>\n

2. Office and field audits<\/h2>\n

On the other hand, office and field audits are much more serious. The IRS will not only ask for information to validate your deductions and credits, but it will also look closely at your lifestyle, business activity and income to see whether your tax return is accurate. Most tax evasion cases start from field audits. But don\u2019t worry \u2013 the IRS prosecutes few taxpayers for tax evasion<\/a> (about 2,000 every year). The IRS saves criminal prosecution for the most egregious tax evaders.<\/p>\n

3. CP2000 notice (underreporter inquiry)<\/h2>\n

There\u2019s also another way the IRS questions tax returns, but it\u2019s not technically an audit. It\u2019s the underreporter inquiry, or CP2000 notice<\/a>, and it\u2019s very common. The IRS sends almost 4 million of these every year. The CP2000 is a discrepancy notice that proposes a specific increase in taxes on your return. The IRS automatically sends these notices when there\u2019s a mismatch between income you reported on your return and information that your employer or other payer provided to the IRS through statements, such as Form W-2 and Form 1099. A common example is when taxpayers don\u2019t report Form 1099-MISC income from work they did as an independent contractor during the year.<\/p>\n

How common is being audited?<\/h2>\n

Here are some numbers that show how common \u2013 or uncommon \u2013 the different types of audits can be:<\/p>\n