How Do You Know If Your Taxes Are Being Audited?

Receiving a letter from the IRS can make anyone's heart skip a beat, but not every notice means you're under audit. In fact, most IRS communications are simple inquiries or automated corrections that can be resolved quickly. This article will help you understand the unmistakable signs that your taxes are actually being audited, explain the different types of audits you might face, and lay out the first steps you should take to respond effectively.

The Official Notice: Your First and Only Real Clue

The single most important thing to know is that the IRS will not surprise you with an audit. They always initiate contact for a full tax audit through a formal letter sent via the United States Postal Service. You will never be told you're under audit for the first time by phone call, email, or text message. Any unsolicited message claiming to be the IRS and threatening you with an audit is a scam.

Because official mail is the only legitimate channel, it’s important to understand the different kinds of notices the IRS sends out. Not all letters are created equal.

IRS Notices vs. Audit Letters: Know the Difference

The vast majority of IRS communications are not full audits. They are usually automated computer notices, known in the industry as "CP" notices (for "Computer Paragraph").

• CP Notices (Like the CP2000): This is the most common letter the public receives. A CP2000 notice, often called a "matching notice," is generated when the income reported on your tax return doesn't match the information reported to the IRS by third parties, like your employer (on a W-2) or a bank (on a 1099-INT). It's not a formal audit; it's a proposal. The letter will say something like, "We are proposing changes to your tax return," and will detail the discrepancy, the proposed tax increase, and penalties and interest. If you agree or the discrepancy is small, you can pay the proposed amount and be done. If you disagree, you must provide documentation to support your position, which can feel like an audit and potentially lead to one if not handled correctly.
• Other Common Notices: You might receive a letter about a simple math error on your return, a balance due on your account, or a question about a dependent you claimed. These are inquiries, not audits, and usually just require a straightforward response.

A true audit is a formal examination of your financial records to verify that you reported your income and deductions correctly according to tax law. An audit letter will state this explicitly. The letters that signal a real audit has begun include:

• Letter 2205: This is a serious notice. It’s the initial contact letter for an in-person, field audit where an agent will come to your location.
• Letter 566: The most common audit letter, this initiates a correspondence or "mail" audit and requests specific information and documents to be mailed to the IRS.
• Letter 3572: This letter requests information for an office audit, where you would need to visit a local IRS office.

Always check the letter number in the top right corner. If you are ever unsure about the legitimacy of a notice, you can look it up directly on the IRS's "Understanding Your IRS Notice or Letter" page. This simple step can immediately clarify what you are dealing with.

Understanding the Different Types of IRS Audits

"Audit" is not a single event; it’s a process that comes in a few different formats. The type of audit determines the seriousness, the scope of the inquiry, and the best way to prepare your response. The notice letter from the IRS will always make it clear which type of audit you are facing.

1. Correspondence Audit (Mail Audit)

This is the most common type of IRS audit, accounting for about three-quarters of all examinations. It's conducted entirely by mail and is usually the least intrusive. A mail audit focuses on a few very specific items on your tax return that the IRS wants to verify, such as itemized deductions, earned income tax credit, or certain business expenses.

If you're selected for a mail audit, you’ll receive a letter from the IRS (often Letter 566 or a similar variant) requesting copies of documents that support the items in question. For example, if they are questioning your charitable donations, you would need to send copies of receipts or bank statements showing the contributions. The best way to handle a correspondence audit is to respond precisely to what is being asked. Only provide the specific documents requested; sending extra, unsolicited information could unnecessarily broaden the scope of the audit.

Pro Tip: When mailing documents, always send copies—never the originals. Also, use a traceable delivery method like certified mail with a return receipt from the U.S. Postal Service. This provides you with legal proof that the IRS received your response by the deadline.

2. Office Audit

An office audit is a step up in seriousness. For this type of examination, you or your designated representative (like a CPA or Enrolled Agent) must appear at a specific IRS office on a designated date to meet with a tax examiner. These audits are more involved than a mail audit but are still typically limited to a few specific issues on your tax return. The IRS will usually schedule an office audit if it feels the issues require a face-to-face conversation or if the mail audit process failed to resolve the matter.

The audit notice will clearly state what information and records you need to bring. Being highly organized is key to success. Have all your documentation grouped by year and category. Only bring the records requested in the notice. It is highly recommended to have a tax professional like a CPA represent you at an office audit. They know what questions to expect, how to answer them without creating new lines of inquiry, and can handle the communication impartially.

3. Field Audit

A field audit is the most comprehensive and serious type of audit. In this situation, one or more IRS revenue agents come to your home, place of business, or accountant's office to conduct a broad review of your books and records. These audits are generally reserved for complex returns, especially those for larger businesses, partnerships, or high-net-worth individuals.

Unlike other audits that focus on a handful of items, a field audit can be wide-ranging. The agent will review nearly everything related to your financial life for a given tax year (or several years). If you receive a notice for a field audit (like Letter 2205), your first step should be to immediately hire a qualified tax professional. An experienced CPA or tax attorney should manage all direct communication with the IRS agent and guide the entire process on your behalf. You should not attempt to handle a field audit on your own.

What to Do First When You Get an Audit Notice

Ignoring an IRS letter is the worst thing you can do. A lack of response can lead to a default judgment where the IRS rules against you, automatically assessing the additional tax plus steep penalties and interest. Responding promptly and properly is critical. Here’s a simple action plan for the first 48 hours:

1. Don’t Panic. Read Carefully. Take a deep breath. An audit is a verification process, not a judgment. Carefully read the entire letter to understand the tax year(s) in question, the specific items being examined, the type of audit, and the deadline for your response.
2. Gather Your Records Immediately. Begin collecting every document related to the items listed in the audit notice for the specified tax period. This includes receipts, bank statements, spreadsheets, contracts, and any other supporting documentation. Get organized today, not the day before the deadline.
3. Consult with a Tax Professional. For any audit more complex than a simple matching notice, a consultation with a tax professional is a smart investment. CPAs and Enrolled Agents are experienced in auditor communication. They can review the notice, help you understand what's really being asked, and coach you on the best way to respond—or they can represent you directly, freeing you from dealing with the IRS completely. Professionals have no emotional attachment to the situation and can manage the process pragmatically.

The Common Red Flags That Might Have Triggered the Audit

While some audits are purely random (governed by the IRS's "Discriminant Information Function" or DIF score program), most examinations are triggered by specific items on a tax return that an automated system flags as unusual. Understanding these red flags can help you prepare for an audit and be more mindful in future filings.

• Discrepancies Between Your Return and Third-Party Info: The number one flag. The IRS computer system gets copies of your W-2s and 1099s. If the income on your return is less than what they see from Chase, PayPal, or your employer, a CP2000 notice is almost guaranteed.
• Claiming Significant Business Losses: Reporting substantial losses for a small business or rental property, especially for multiple years in a row, can trigger what's known as the "Hobby Loss Rule" audit. The IRS wants to determine if you are running a legitimate business or simply writing off losses from a personal hobby.
• Unusually Large Deductions Relative to Income: A software engineer earning $120,000 who claims $40,000 in charitable contributions will stand out. So will a small business claiming disproportionately large meal or travel expenses.
• Claiming 100% Business Use of a Vehicle: This is a classic red flag. The IRS knows that it's extremely rare for a personal vehicle to be used exclusively for business without any personal use. Detailed mileage logs are essential to survive this kind of scrutiny.
• High Income: It is a simple fact that as your income increases, so does your audit risk. The IRS focuses its resources where it is most likely to recover tax dollars.

Final Thoughts

In short, the only way to genuinely know if you are being audited is to receive an official letter from the IRS by mail. Understanding whether it is a simple notice or a full audit, and recognizing whether it's a mail, office, or field examination, will tell you exactly how serious the situation is. No matter the type, the key is to respond promptly, provide only the specific documentation requested, and consult with a tax professional to guide you.

In any audit, you or your CPA must build a defensible position that relies on thorough documentation and accurate interpretations of tax law. Instead of spending hours digging through complex tax codes or outdated forums, our Feather AI provides citation-backed answers to your tax questions in seconds. You can instantly access the specific IRC sections, revenue rulings, and state tax codes you need to support your case, ensuring every response you send to the IRS is accurate and authoritative.