Man with tax forms on a clipboard checking what happens during an audit.

Types of IRS Audits: What Happens During an Audit?


Every business owner and freelancer lives in fear of that word, even if they’re not really sure why. If you don’t utilize professional bookkeeping services, you may not have any idea what really happens during an audit, or why it’s something that’s so feared in the entrepreneurial community.

In this post, the online bookkeeping experts at RQB have outlined a few facts (straight from the IRS!) about what actually happens during an audit and how outsourcing your bookkeeping services can help you avoid finding yourself in the middle of one.

Types Of IRS Audits

One thing that surprises many of our clients who’ve never used bookkeeping services is that there’s more than one kind of audit.

  1. The Mail Audit – As the name implies this audit is carried out through the mail. Typically, this type of audit is triggered when the IRS simply needs more information or supporting documentation for your tax return. Using online bookkeeping services comes in very handy during this type of an audit, as all of your documentation is in one easy-to-access place!
  2. The Interview/Examination Audit – In this type of an audit, the taxpayer is asked to visit an IRS office in person so that receipts and documentation can be examined immediately.
  3. The Field Audit – This is where audits get their reputation for being unpleasant. During a field audit, an IRS representative will actually visit your home or business to examine your records. If you haven’t been using bookkeeping services, it could get dicey!
  4. The Correspondence Audit – Sometimes carried out via electronic means, the correspondence audit is very similar to the mail audit. It’s triggered when the IRS needs supporting evidence about very specific claims made on your tax report. It can also be a way to collect unpaid taxes.

Your Rights During An Audit

From the sounds of things, being involved in an audit means the IRS asks a lot of questions and pokes around in your financial records. Many business owners wonder what their rights are when it comes to meeting demands for supporting documentation.

Your legal rights, according to the IRS, are:

  • 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.

Let’s take a look at some more specifics surrounding the audit process: the reasons that the IRS might inform you that they plan to execute one of the four types of audits for your business.

According to the IRS, there are three reasons you might be selected for an audit:

  • Your Business Was Randomly Selected – Sometimes returns are selected based solely on a statistical formula that the IRS uses to spot check the millions of tax forms that are filed each year.
  • Your Document Records Don’t Match – The IRS may select you for an audit if the payor records, such as Forms W-2 or Form 1099, don’t match the information that you reported when filing your business taxes.
  • There Are Issues With Related Explanations – “Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit,” states the IRS.

Although audits have a reputation for striking fear into the heart of small and medium-sized business owners, you can see from this list that being summoned for an audit doesn’t always mean you’ve done something wrong. Still, it’s always nice to know that you can prove your innocence with the documentation that’s carefully tracked by our online bookkeeping services.

Online Bookkeeping Services Lower Your Risk Of An Audit

Mistakes can happen, even when you have professional bookkeeping services. Perhaps you simply forgot one of many 1099s, or put a decimal in the wrong place when reporting money earned. However, it’s much easier to provide supporting documentation that proves it was only an innocent mistake (and not an attempt to defraud the government) when you use a professional bookkeeper.

Our online bookkeeping services keep track of all your income, expenses, and documentation tracking so that it’s all in one, convenient, easily-accessible place if and when the IRS comes a’ knocking.

So what are you waiting for? Sign up for our online bookkeeping services for small businesses, and get the peace of mind that only comes from knowing that your financials are being taken care of properly.

Our Experts Are Ready

Book your free demo today to learn how a virtual bookkeeper can save you time and money for your business.

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