What Happens If Your Taxes Get Audited by the IRS?

If your taxes get audited by the IRS, you’ll receive a letter in the mail identifying the tax year and the specific items under review, you’ll be asked to provide documentation supporting those items, and the examination will end one of three ways: no change to your return, additional tax you agree to pay, or a proposed adjustment you can dispute through appeals and the courts.¹ Most audits are narrow, handled entirely by mail, and resolved without drama if you respond on time with organized records.

How You’ll Find Out

Every IRS audit starts with a written notice delivered by the U.S. Postal Service. The IRS does not open an audit by phone, email, or text. A caller demanding immediate payment and claiming to be from the IRS is running a scam.¹

The letter tells you three things: which tax year is being examined, which line items the IRS is questioning, and what type of audit you’re facing. Read it carefully before doing anything else. The scope listed in that letter sets the boundaries of what you need to defend.

One quick boundary worth drawing. If the notice you received is a CP2000, that’s not technically an audit. It’s an automated letter the IRS sends when income reported by an employer or bank doesn’t match what’s on your return, and you can usually resolve it by explaining the discrepancy or sending the missing form.²

The Three Types of Audit

What the audit actually looks like depends on which type the IRS has opened.

A correspondence audit is handled entirely by mail. It’s the most common type and usually targets one or two items, like a specific deduction or credit. You respond by mailing in the requested documentation.³
An office audit requires you to meet in person at a local IRS office. These cover more complex issues, and you bring your documentation to the appointment.
A field audit is when a revenue agent comes to your home, business, or accountant’s office. These are reserved for the most complex individual and business returns.¹

What To Do When the Notice Arrives

Start gathering records the day you open the letter. The notice tells you exactly which items are in question, so focus your effort there. Pull together receipts, bank statements, canceled checks, invoices, and any logbooks you kept for things like business mileage or home office use. Organize everything by the line item or schedule it supports.

Before you send anything in or walk into a meeting, compare your supporting documents against what you actually reported. This is where you catch problems early. If your records don’t fully back up a deduction you claimed, you need to know that before the examiner does.

You have the right to let a tax professional handle the whole thing. A CPA, enrolled agent, or tax attorney can represent you under a Power of Attorney filed on IRS Form 2848, and the IRS cannot require you to attend the audit yourself as long as your representative is there.⁴ A good representative controls what gets handed over and keeps the conversation on the items the IRS actually asked about, rather than volunteering information that could prompt new questions.

Federal law also gives you the right to pause any in-person interview to consult with a representative, and to make an audio recording of the interview as long as you give the IRS advance notice.⁵

The notice includes a response deadline, but you can request a reasonable extension if you need more time to assemble records. Don’t rush an incomplete response just to meet the date.

What Happens During the Examination

In a correspondence audit, you mail in the documentation and wait. The IRS reviews what you sent and either closes the case or asks for more.

In an in-person audit, the examiner opens by confirming the scope of the review. You or your representative then walk through the organized documentation supporting each questioned item, and the examiner asks questions about the underlying transactions and compares what you’ve provided against what you reported.

The scope in your initial letter sets the starting boundaries, but examiners can expand the audit if they discover other issues during the review. Expansion requires supervisory approval and has to tie back to the accuracy of the return. This is a practical reason to answer only what was asked. Information volunteered about items the IRS wasn’t questioning can give an examiner the justification to widen the inquiry.

At the end of the review, the examiner walks through preliminary findings and tells you which items were accepted and which the IRS wants to adjust. If there are still open questions, more documents may be requested before the case closes. This preliminary conversation is your chance to counter proposed adjustments with additional evidence before anything becomes final.

How the Audit Ends

Every audit closes one of three ways:

No change. The IRS accepts the return as filed and sends a letter confirming it. This is more common than people expect, especially for returns with solid documentation.
Agreed change. The examiner proposes adjustments and you agree. You sign a consent form that lets the IRS assess the additional tax and interest. Signing waives your right to appeal those items through the Office of Appeals or petition the Tax Court on them.
Disagreed change. You don’t accept the proposed adjustments, and the case moves toward the appeals process.

A common misconception: signing the agreement doesn’t stop interest. Under federal law, interest on an underpayment runs from the original due date of the return until the day you actually pay.⁶ If you agree with the adjustment, pay as quickly as you can.

What You’ll Owe if the IRS Proposes Changes

When an audit produces additional tax, the IRS usually adds interest and often a penalty on top.

Interest

Interest on underpaid tax runs from the original due date of the return, not from when the audit ends. For the first quarter of 2026, the individual underpayment rate is 7% per year, compounded daily. The rate resets each quarter based on the federal short-term rate plus three percentage points.⁷ A deficiency on a three-year-old return already has three years of compound interest attached before the audit closes. Interest cannot be waived through penalty abatement or reasonable cause.

Accuracy-Related Penalty

If the underpayment resulted from negligence or a substantial understatement of income, the penalty is 20% of the underpaid amount. A substantial understatement exists when you understated your tax by the greater of 10% of the tax that should have been reported, or $5,000.⁸ If you claimed a qualified business income deduction, the threshold drops to 5% of the required tax.⁹

Civil Fraud Penalty

If the IRS can prove the underpayment was due to fraud, the penalty rises to 75% of the portion attributable to fraud.¹⁰ The fraud penalty replaces the 20% accuracy penalty on the same dollars rather than stacking on top of it. The burden of proof for fraud rests on the IRS.

Penalty Relief

You can ask for penalty abatement if you had reasonable cause and acted in good faith. Common grounds include reliance on professional tax advice, serious illness, or records destroyed in a natural disaster. The IRS evaluates these case by case. Relief applies to penalties only, not interest.

Paying a Balance You Can’t Cover All at Once

If you can’t pay the full balance immediately, the IRS has several options. Interest and penalties keep accruing on the unpaid amount under all of them.

A short-term payment plan lets you pay within 180 days with no setup fee.¹¹
A long-term installment agreement with direct debit from your bank account has a setup fee of $22 if you apply online, or $107 by phone or mail.¹¹
A long-term installment agreement without direct debit has a setup fee of $69 online, or $178 by phone or mail. Low-income taxpayers may qualify for reduced or waived fees.
An offer in compromise lets you propose paying less than the full balance if you genuinely can’t pay. The IRS looks at your income, expenses, and asset equity to decide whether your offer represents the most it can reasonably expect to collect. The application fee is $205, and you must be current on all required filings and not in an open bankruptcy.¹²

Offers in compromise have a low acceptance rate, and the IRS won’t approve one if it thinks you could pay the full balance through an installment agreement. The calculation turns on asset value and future income, not on whether the debt feels unfair.

If You Disagree With the Findings

If you don’t accept the examiner’s proposed changes, you don’t have to. The dispute process has an administrative phase inside the IRS and a judicial phase in court.

The 30-Day Letter and Appeals

When examiner and taxpayer can’t agree, the IRS issues a 30-day letter with a report explaining the proposed adjustments. You have 30 days from the date of the letter to file a written protest requesting a hearing with the IRS Independent Office of Appeals.¹³ The protest goes to the office that sent the letter, not directly to Appeals.¹⁴

Tax Court is the only venue where you can dispute the determination without paying first.¹⁶ If you’d rather pay and then sue for a refund, you can file a refund claim; if the IRS denies it or doesn’t act within six months, you can sue in a U.S. District Court or the U.S. Court of Federal Claims.¹⁷ Those courts require full payment up front, so Tax Court is the more practical path for most people.

What Happens if You Ignore the Audit

Ignoring the notice is one of the worst things you can do. In a correspondence audit, failure to respond means the IRS disallows the questioned deductions or credits and assesses additional tax based on its own numbers. You lose the chance to present documentation and get no benefit of the doubt.

In an in-person audit, not showing up produces the same result. The examiner closes the case using whatever information the IRS has, which almost always means the maximum adjustment. Then the standard collection process begins: a 30-day letter, a 90-day letter if you still don’t respond, and eventually an assessed deficiency that moves to the collection division. At that point you’re facing enforced collection, including potential liens and wage garnishment, and your appeal options have narrowed considerably.

If you feel overwhelmed, call the number on the letter or request an extension. The IRS routinely grants reasonable delays for taxpayers who are actively engaging.

How Far Back the IRS Can Go

The IRS doesn’t have unlimited time. Under the general rule, it must assess additional tax within three years after you filed the return. If you filed early, the clock runs from the due date. If you filed late, it runs from the actual filing date.¹⁸

The three-year window extends to six years if you omitted gross income exceeding 25% of what you reported, or if the omission exceeds $5,000 and involves assets subject to foreign financial reporting requirements.¹⁸ If you filed a fraudulent return or never filed at all, there is no time limit.

Match your record retention to those limits. The IRS recommends keeping records that support a return for at least three years after filing. Keep them six years if there’s any chance of a substantial income omission, and seven years if you claimed a deduction for worthless securities or bad debt. Records for property transactions should be kept until the statute of limitations expires for the year you sell or dispose of the property.¹⁹

1
Internal Revenue Service. IRS Audits
2
Internal Revenue Service. Understanding Your CP2000 Series Notice
3
Taxpayer Advocate Service. Lifecycle of a Tax Return – Correspondence Audits
4
Internal Revenue Service. About Form 2848 – Power of Attorney and Declaration of Representative
5
Office of the Law Revision Counsel. 26 USC 7521 – Procedures Involving Taxpayer Interviews
6
Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax
7
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
8
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
9
Internal Revenue Service. Accuracy-Related Penalty
10
Office of the Law Revision Counsel. 26 USC 6663 – Imposition of Fraud Penalty
11
Internal Revenue Service. Payment Plans – Installment Agreements
12
Internal Revenue Service. Offer in Compromise
13
Internal Revenue Service. Letters and Notices Offering an Appeal Opportunity
14
Internal Revenue Service. IRM 4.8.9 Statutory Notices of Deficiency
16
Internal Revenue Service. Taxpayers Have the Right to Challenge the IRS’s Position on Their Taxes
17
Internal Revenue Service. Taxpayer Bill of Rights – The Right to Appeal an IRS Decision
18
Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection
19
Internal Revenue Service. How Long Should I Keep Records?