What commonly triggers an audit?
| Trigger | Why it stands out |
|---|---|
| Income below Forms 1099-NEC, 1099-K or 1099-MISC | Automatic matching flags the gap |
| Deductions high for the industry and income | Statistical scoring compares returns |
| Losses year after year | Raises hobby or overstated expense questions |
| Large cash business | Higher risk of unreported receipts |
| 100% business use of a vehicle | Rarely true; needs a mileage log |
| Large meals, travel or home office claims | Common areas of error |
| Round numbers | Suggest estimates rather than records |
| Related partnership, S corporation or partner under exam | Examinations often spread to related returns |
See hobby or business and receipt requirements.
What kinds of audit are there?
- Correspondence audit: by letter, asking for documents on specific items. The most common kind.
- Office audit: a meeting at an IRS office about several items.
- Field audit: a revenue agent visits the business, reviewing the books more broadly.
A CP2000 notice is not technically an audit but a proposed adjustment from information matching. See CP2000 notice.
Most small business audits focus on a few items, such as income, vehicle expenses or contractor payments, rather than the whole return. Answering clearly and completely on those items usually keeps the audit narrow and short.
Field audits are more likely for larger businesses, complex returns, or where the IRS needs to see the books and operations in person.
How should you respond to an audit letter?
Confirm it is genuine
Audits start by letter, never by phone or email alone.
Note the issues and deadline
Answer only what is asked.
Gather records for those items
Receipts, statements, logs and reconciliations.
Consider representation
A CPA, enrolled agent or attorney can deal with the IRS for you. See Form 2848.
Review the findings
Agree, provide more evidence, or appeal.
Do not send original documents; send copies and keep a list of what was provided and when.
Stay polite and factual with the examiner, and if you do not know an answer, say you will check rather than guessing.
How does an audit end?
| Outcome | What happens |
|---|---|
| No change | The return is accepted as filed |
| Agreed | You accept the proposed changes and pay or arrange payment |
| Unagreed | You can request a meeting with the examiner's manager, then appeal to the IRS Independent Office of Appeals |
| Notice of deficiency | If still unresolved, you have 90 days to petition the Tax Court before assessment |
What rights do you have?
Under the Taxpayer Bill of Rights, you have the right to be informed, to quality service, to challenge the IRS's position and be heard, to appeal, to representation and to privacy, among others. You can ask for more time to gather records, and you should keep copies of everything provided.
How can you reduce the risk?
Report all income, matching the forms the IRS receives; keep receipts and logs for meals, travel, vehicles and home office; reconcile the books monthly; and avoid estimates. Claim what you are entitled to, but make sure every figure is supported. See common bookkeeping mistakes.
How far back can an audit go?
Usually three years from filing, six if income was substantially under-reported, and without limit for fraud or unfiled returns. See the IRS statute of limitations.
Keep records for at least that long.
Received an audit letter?
We review the issues raised, prepare the records, represent you with the IRS and appeal if the findings are wrong.
Questions people ask
What triggers an IRS audit for a small business?
Most often income not matching Forms 1099, deductions out of line with similar businesses, repeated losses, cash receipts, or vehicle and home office claims.
How likely is an IRS audit?
Low in any one year for most small businesses, but higher where returns show unusual patterns.
What is a correspondence audit?
An audit by letter, asking for documents on specific items, the most common type.
How far back can the IRS audit?
Usually three years, six for substantial under-reporting, and without limit for fraud or unfiled returns.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- IRS: IRS audits
- IRS Publication 556: Examination of Returns, Appeal Rights, and Claims for Refund
- IRS: Taxpayer Bill of Rights
Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.
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This guide is general information. It is not tax or legal advice for your situation.