A tax audit is a process by which the Internal Revenue Service (IRS) examines the financial disclosures of a business or individual’s tax records. Audits can be performed randomly, in relation to the audit of a related entity, and for cause such as an anonymous report.

There are two ways to conduct an audit: through the mail or in person. Audits can be conducted at a local IRS field office, known as an office audit, or at the home, place of business, or accountant’s office of the individual being audited, known as a field audit.

It is not feasible to gather all possible documentation prior to an audit. Tax auditors may request a number of documents including:

• Receipts
• Bills
• Canceled checks
• Legal documents
• Loan agreements
• Medical records
• Employment documents

When the IRS requests documents, individuals being audited have a set period of time to respond with the appropriate documentation. Documents may be sent in physically through the mail or electronically.

Individuals being audited are responsible for providing relevant documents requested by the IRS for the purpose of conducting the audit. The IRS also lists the rights that individuals being audited have including:

• A right to professional and courteous treatment by IRS employees.
• A right to privacy and confidentiality about tax matters.
• A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
• A right to representation, by oneself or an authorized representative.
• A right to appeal disagreements, both within the IRS and before the courts

If an individual feels their rights are being violated, they are allowed to challenge the deprivation of their rights in an appropriate venue with legal representation.

The IRS states that there are three outcomes to a tax audit: no change, agreement, and disagreement. If the IRS concludes in no change, all of the items have been reviewed and no changes resulted. If the IRS reaches an agreement, the IRS proposes changes that the subject of the audit understands and agrees to the proposed changes. If the IRS audit concludes with disagreement, then the agency has suggested changes and the subject of the audit has disagreed with the outcome. If the audit ends in disagreement, a conference can be arranged with an IRS manager or an appeal can be filed.