<p><img src="https://static4.businessinsider.com/image/5f733d580ab50d00184acf29-910/GettyImages-1221422461.jpg" border="0" alt="IRS office" data-mce-source="Chip Somodevilla /Staff/Getty Images"></p><p></p><bi-shortcode id="disclaimer" class="mceNonEditable" data-type="pfi"></bi-shortcode><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><ul class="summary-list"><li>A tax audit is when the IRS thoroughly double checks a person or corporation's tax filings.</li><li>Audits generally happen on the last three years of tax returns, but can go back as far as six years.</li><li>Many factors can increase a person's likelihood of being audited, from high income to rounded, estimated numbers on tax forms.</li><li aria-level="1">This article was reviewed for accuracy and clarity by<a href="https://folafinancial.com/" target="_blank" rel="noopener" data-analytics-module="summary_bullets" data-analytics-post-depth="0" data-uri="a92d8af89789e7600b7045f028542a91">Sheneya Wilson</a>, an expert on Personal Finance Insider's<a href="https://www.businessinsider.com/personal-finance/tax-review-board-experts" data-analytics-module="summary_bullets" data-analytics-post-depth="0" data-uri="f489bbf65a3947f4cfc3c57db86b29df">tax review board</a>.</li><li><a href="https://www.businessinsider.com/what-is-best-tax-software" target="_blank" rel="noopener" data-analytics-module="summary_bullets" data-analytics-post-depth="0">See Personal Finance Insider's picks for the best tax software </a></li></ul><p>A tax audit is a complete investigation into a taxpayer's finances, income, and taxation conducted by the Internal Revenue Services. It's a double-checking of a person or corporation's tax filings, and generally means the IRS goes through financial records, taxes, and more with a fine-tooth comb to make sure everything was reported correctly.</p><p>Here's what you need to know about tax audits.</p><h2><strong>What is an audit'</strong></h2><p>There's one main goal of an audit: to make sure that someone has paid the right amount of <a href="https://www.businessinsider.com/personal-finance/what-tax-bracket-am-i-in-federal-income-tax" target="_blank" rel="noopener">federal income taxes</a>, and that income and deductions are reported correctly.</p><p>In some cases, an audit could result in someone paying more in taxes. In 2019, the IRS reported that audits resulted in <a href="https://www.irs.gov/statistics/compliance-presence" target="_blank" rel="noopener">$17.3 billion worth of additional taxes</a> paid.</p><h2><strong>How far back can the IRS audit'</strong></h2><p>The IRS can only conduct tax audits on fairly recent tax returns. Generally, audits only happen for the last three tax years. However, audits can go back as far as six years in special circumstances.</p><h2>Who gets tax audited the most'</h2><bi-shortcode id="related-article-module" class="mceNonEditable" data-type="5f721585bf96b948df3bed58" data-title="The average amount Americans pay in federal income taxes, by income level" data-url="https://www.businessinsider.com/personal-finance/average-federal-income-tax-payment-by-income" data-thumbnail="https://i.insider.com/5f724db30ab50d00184ace09" data-shortcode-display-text="Related Article Module: The average amount Americans pay in federal income taxes, by income level"></bi-shortcode><p>Your chances of being audited are slimabout one out of every 220 taxpayers was audited in 2019, <a href="https://www.cnbc.com/2020/01/08/attention-taxpayers-irs-audits-have-fallen-significantly.html" target="_blank" rel="noopener">CNBC's Greg Iacurci</a> reports. That's fewer than 0.5% of tax returns filed.</p><p>Tax audits can happen to anyone, but are most common on either extreme of the income scale, according to a <a href="https://www.propublica.org/article/earned-income-tax-credit-irs-audit-working-poor" target="_blank" rel="noopener">report from ProPublica</a>. It happens most often to the ultra wealthy and the very poor, and less often to middle-income earners.</p><p>ProPublica's reporting found that in 2017, people claiming the <a href="https://www.businessinsider.com/personal-finance/what-is-the-earned-income-credit-refundable-tax-credit" target="_blank" rel="noopener">earned income tax credit (EITC)</a>a tax credit for low- to moderate- income familieswere <a href="https://www.propublica.org/article/earned-income-tax-credit-irs-audit-working-poor" target="_blank" rel="noopener">audited twice as frequently</a> as a household earning $200,000 to $500,000 per year. Since the EITC is often claimed in error, it attracts scrutiny for audits.</p><div><iframe src="https://smartasset.com/captivate/frame/ucznodjd" width="100%" height="650px" scrolling="auto" style="border: none;"></iframe></div><h2><strong>What causes an audit by the IRS'</strong></h2><p>Taxpayers are selected for an audit one of two ways, according to the <a href="https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits#audit-selection" target="_blank" rel="noopener">IRS website</a>. Some people are selected for auditing through computer screening with a formula, though the IRS says that people can be chosen at random through this method. Additionally, anyone with a financial relationship to another person who's being audited could also be chosen for auditing.</p><p>While auditing can happen to anyone, there are a few things that increase the chances of being selected. Things like rounded, even numbers on a return, rental income, and even <a href="https://www.businessinsider.com/personal-finance/claiming-home-office-tax-deduction-work-from-home-2020-4" target="_blank" rel="noopener">home office deductions</a> can increase a person's chances of being audited.</p><p>Additionally, the IRS says that having an association with someone else who's under investigation could also yield an audit. Taxpayers who have made transactions with someone else under audit may also be chosen.</p><h2><strong>What happens if you get audited'</strong></h2><p>In the end, the IRS says that there are three possible outcomes from an audit.</p><ul><li aria-level="1">There could be no change. If everything on the return is accurate according to the investigation, there may not be any changes made.</li><li aria-level="1">The taxpayer agrees to the findings, and owes taxes. If the audit finds that a taxpayer underreported their income or underpaid their taxes, they could be required to pay more, including penalties and interest in some cases.</li><li aria-level="1">The taxpayer disagrees with the findings, and disputes them. Disputing the charges often means filing an appeal where the case is re-reviewed.</li></ul><p>An audit can go on for a long timethe IRS says the time frame depends on availability to schedule meetings, if there are disagreements with the findings, and how much information is needed. While someone who only earns income from a job may have relatively little information to supply, the owner of an international corporation will have lots more information to track down, and an audit will take longer.</p><div><style> #div-gpt-ad-1579713650634-0 > div > iframe { width: 100% !important; min-width: 300px; max-width: 595px; } </style><script async src="https://securepubads.g.doubleclick.net/tag/js/gpt.js"></script><script> window.googletag = window.googletag || { cmd: [] }; googletag.cmd.push(function () { googletag.defineSlot('/1035677/Business_Insider_', [[1, 1], [300, 139], [595, 139], [300, 250], [595, 250], [300, 360], [595, 360], [300, 475], [595, 475]], 'div-gpt-ad-1579713650634-0') .addService(googletag.pubads()); googletag.pubads().enableSingleRequest(); googletag.pubads().setTargeting('category', ["Banking"]).setTargeting('subcat', ["Savings Accounts"]).setTargeting('post_id', []) .setTargeting('post_url', []) .setTargeting('keyword', []) .setTargeting('company-product', []) .setTargeting('post_title', []); googletag.enableServices(); }); </script><!-- /1035677/Business_Insider_ --><div id="div-gpt-ad-1579713650634-0"> <script> googletag.cmd.push(function () { googletag.display('div-gpt-ad-1579713650634-0'); }); </script></div></div><bi-shortcode id="related-content-module" class="mceNonEditable" data-type="more-tax-coverage" data-sheetname="More Tax Coverage">Related Content Module: More Tax Coverage</bi-shortcode><p><a href="https://www.businessinsider.com/personal-finance/tax-audit#comments">Join the conversation about this story »</a></p>
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