What Happens When You Get Audited?

Episode 343 – No one enjoys receiving a letter from the IRS, especially when they open it and realize that their return is being reviewed. The odds are longer than most people realize, but what should you do if this happens to you?

More SML Planning Minute Podcast Episodes Transcript of Podcast Episode 343

Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, what happens when you get audited?

No one enjoys receiving a letter from the Internal Revenue Service (IRS), especially when they open it and realize that their return is being reviewed. There are few things that create more fear and anxiety than a so-called “exam letter.” It very often means that you’re looking at a significant time commitment just to put together the documentation they’re looking for. It could also mean some serious expenses for additional taxes, interest, penalties, and accounting fees.

Back in episode 328 we talked about some of the things that may trigger an audit. Today, we take things a step further and talk about how to prepare if you are one of the unfortunate few who get tagged.

In a recent article for Schwab.com, Hayden Adams, a former IRS agent, explains what happens during an audit, and has some suggestions on how to get ready.[1]

The first step, before anything else, is to confirm that it actually is the IRS you are speaking to. We’ve discussed all sorts of scamsters in previous episodes, and they love pretending to be the IRS. And with good reason. Any mention of the words “Internal Revenue Service” is bound to get the someone’s attention.

Note that if the initial contact is through a text message or email, there’s a good chance that it’s a fraud. Almost every IRS audit begins with a letter in the mail, one that usually says, “your return has been selected for examination.”

The letter will also provide the name of the IRS agent, their phone number and the case number. This gives you the opportunity to call the IRS independently so they can verify that the information is accurate.[2]

The next step is to figure out what type of audit it is. There are generally three categories: correspondence audits, office audits, and field audits.[3]

A correspondence audit takes place entirely by mail. The IRS notices what they believe to be a mistake on the tax return and asks you to pay additional taxes by a certain date. At that point you can either pay the extra tax (plus potential penalties and interest) or let them know why you think they’re the ones who made the mistake.

An office audit tends to get into more detail. It involves a visit to the IRS office involved, where you bring the documentation required for the specific issue the IRS is questioning. On these types of audits it’s generally recommended that you organize your documentation as best you can before you arrive. The better the agent can match your records to what they’re looking at, the quicker the process will go.[4]

A field audit tends to be more thorough than the other two. This is where an agent comes to your home or place of business to review your financial records. But beware: With this type of audit, the agent has the ability to expand the scope of the audit if they notice anything they find questionable.[5]

Fortunately, the most intensive form of an IRS audit, the Taxpayer Compliance Measurement Program, or TCMP audit, no longer exists.[6] Taxpayers were selected randomly for a TCMP audit. Unlike the previously listed audit types, the TCMP was a comprehensive examination of every line in the entire tax return. It was not designed to generate revenue, although often it did. Its primary purpose was to gather data that the IRS could use to better target future enforcement efforts.

The TCMP was discontinued in the 1990s, replaced in 2001 by the National Research Program, or NRP. This newer program has the same goals as the TCMP but is designed to be less intrusive. Many NRP audits only look at a few specific items on the return.[7]

So, what’s the best way to prepare for an audit? Schwab has four suggestions.[8]

Make sure your paperwork is in order. Everything tends to go more smoothly if you have all your statements, receipts and bank records organized. There’s some value in showing that you’re prepared, organized, and not hiding anything. “Audit” yourself. The author points out that audits often occur a year or two after you file the return. You probably don’t remember everything, and it might be a good idea for you to test your documentation. For example, see if you can test your deductions by providing all the required receipts or bills. Be accommodating. As you may expect, being evasive tends to lead to more questions. If you don’t remember something, it’s OK to say so. Do some digging if you need to. Seek professional help. If you have a CPA, there’s a good chance they have some experience dealing with IRS audits. Having someone like that nearby can be a huge help, especially if they were involved in the preparation of the original return.[9]

One last note: It’s important to realize that the general rate of tax audits has declined in recent years. According to CBS News, only 0.2 percent of individual income tax returns filed for the 2020 tax year were audited.[10] Note that these returns were filed in 2021 and that this is the most recent data available from the IRS.

Of course, the audit rate goes up considerably when you make more money. But it’s still only about 2.4 percent for people with incomes above $10 million.[11] So maybe some of us are more worried than we should be.

[1] Adams, Hayden. “What Happens During an IRS Audit?” Schwab.com. https://www.schwab.com/learn/story/what-happens-during-irs-audit?cmp=em-XCU (accessed July 7, 2025).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] AccountingInsights Team. “What Were TCMP Audits and Do They Still Exist?” Accountinginsights.org. https://accountinginsights.org/what-were-tcmp-audits-and-do-they-still-exist/ (accessed July 7, 2025).

[7] Id.

[8] Adams, Hayden. “What Happens During an IRS Audit?” Schwab.com. https://www.schwab.com/learn/story/what-happens-during-irs-audit?cmp=em-XCU (accessed July 7, 2025).

[9] Id.

[10] Picchi Aimee. “Many taxpayers fear getting audited by the IRS. Here are the odds based on your income.” CBSNews.com. https://www.cbsnews.com/news/tax-irs-audit-here-are-your-chances-cbs-news-explains/ (accessed July 7, 2025).

[11] Id.

More SML Planning Minute Podcast Episodes

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information. 

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve at legal, tax or other financial advice related to individual situations, because each person’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and X (formally Twitter). Thanks for listening, and we’ll talk to you next time.

Tax laws are complex and subject to change. The information presented is based on current interpretation of the laws. Neither Security Mutual nor its agents are permitted to provide tax or legal advice.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state. 

SubscribeApple PodcastsSpotifyAndroidPandoraBlubrryby EmailTuneInDeezerRSSMore Subscribe Options