IRS Audits

An audit is an IRS review of a return to verify that income, deductions, and credits were reported correctly. Most returns are chosen by computer, which scores them for the likelihood of errors and matches them against the W-2s, 1099s, and other information that employers, banks, and brokers send the IRS. Most audits are now conducted entirely by mail and cover a single item, such as a credit or deduction, while fewer are field audits at a home or business. The IRS generally has three years after a return is filed to audit it, six years if income was substantially understated, and no limit for fraud or for a return never filed.

Audit rates fell sharply after budget cuts in the 2010s, and recent data show the IRS examining well under 1 percent of individual returns, with higher rates at the very top of the income scale and among low-income workers who claim the Earned Income Tax Credit. A 2023 study by Stanford and Treasury researchers found that Black taxpayers were audited at several times the rate of others because of how the IRS selected credit claims, and the IRS said it would change its methods. An audit ends with no change, an agreed adjustment, or a notice of deficiency, which the taxpayer can contest in the Independent Office of Appeals or the Tax Court before paying.

The Inflation Reduction Act of 2022 gave the IRS about 80 billion dollars over ten years, much of it for enforcement, and the Treasury pledged to focus new audits on households earning more than 400,000 dollars. Congress clawed back a large share of that money in later budget deals, and in 2025 the IRS lost about a quarter of its workforce, including many revenue agents. Supporters of more enforcement point to a tax gap the IRS estimates at roughly 700 billion dollars a year in unpaid taxes and say audits of high earners pay for themselves. Critics say more audits burden honest taxpayers and small businesses and that the money would be better spent on service.