What is a Tax Audit?

• A tax audit is a detailed investigation into the tax obligations of a party, be it an individual, business or other organization, in order to discover whether additional taxes are owed and whether the party may have intentionally evaded payment. Since certain taxes are self-reported, it is quite easy for an individual to neglect to make payments or neglect to to cite all income on the federal income tax return. Individuals or businesses that are suspected of such negligence, whether the negligence is an honest mistake or a deliberate deception, are forced to undergo a tax audit.
  
  

The Auditing Process

• A tax audit involves sending a team of skilled accountants and fact-finders to the the party that is suspected of underpaying taxes and having the team sift through all of that party's records to calculate the amount of tax that should have been paid. The auditors are knowledgeable about the tax code, which enables them to spot possible discrepancies between the taxes paid and tax owed. For example, someone might have claimed certain purchases as tax write-offs for business when in fact the purchases would not quality as a tax deduction. It is the auditor's job to determine the final amount of taxes owed, which often results in additional taxes that must be paid by the party being audited.
  
  

Who Gets Audited?

• In general, those most likely to be audited are individuals and businesses that the government believes are involved in tax evasion of some sort and are likely to owe additional taxes. It costs money for the federal government to carry out audits, so making up the money spent on audits by recovering taxes owed is important. For this reason, the wealthy and larger businesses are more likely to be audited, since they are more likely to owe and be able to pay large sums of additional taxes. For individuals who make under $100,000 a year, the chances of being audited are very low, unless obvious foul play has taken place. The government does carry out some random audits of parties without suspicion of tax evasion, so no one is guaranteed not to be audited.