IRS Audit vs Examination vs Compliance Check

Audit vs examination — the terminology

"Audit" and "examination" mean the same thing.

The IRS officially uses the term "examination" in formal communications and internal procedures. "Audit" is the common, everyday term. When the IRS sends you a notice about an examination, you're being audited. There is no legal or procedural difference between the two terms.

An examination/audit is a review of your filed tax return to verify that:

• All income was properly reported
• Deductions and credits claimed are allowable and substantiated
• The return was prepared in accordance with tax law

Types of IRS audits

Audits differ in scope, method, and complexity. The type of audit typically depends on the issues being examined and the complexity of your return.

Correspondence audit

What it is: An audit conducted entirely by mail. You never meet with an IRS agent in person.

How it works:

• You receive a notice requesting documentation for specific items on your return
• The notice specifies exactly what the IRS is questioning
• You mail copies of the requested documents
• The IRS reviews and issues a determination

Common issues examined:

• Charitable contribution deductions
• Unreimbursed business expenses
• Earned Income Tax Credit eligibility
• Medical expense deductions
• Education credits

Key facts: Correspondence audits are the most common type, accounting for about 75% of all IRS audits. They typically focus on one or two specific issues.

Office audit

What it is: An audit conducted at an IRS office. You meet with an IRS examiner in person.

How it works:

• You receive a notice scheduling an appointment at an IRS office
• The notice lists issues to be examined and documents to bring
• You (or your representative) meet with the examiner
• The examiner reviews documents and asks questions
• Additional documentation may be requested

Common issues examined:

• Self-employment income and expenses
• Rental property income and deductions
• Itemized deductions (multiple categories)
• Casualty losses

Key facts: Office audits are more comprehensive than correspondence audits but less intensive than field audits. They typically take half a day or less and may require follow-up appointments.

Field audit (field examination)

What it is: An audit conducted at your home, business, or your representative's office by an IRS Revenue Agent.

How it works:

• You receive notification that a Revenue Agent has been assigned to examine your return
• The agent contacts you to schedule an initial meeting
• The examination may cover multiple issues and multiple tax years
• The agent may interview you, review records on-site, and make multiple visits
• The examination can extend over months

Common situations for field audits:

• Business returns with complex transactions
• High-income individual returns
• Returns with suspected fraud or significant underreporting
• Cash-intensive businesses
• Partnership and S corporation examinations

Key facts: Field audits are the most comprehensive and intensive type of audit. Revenue Agents assigned to field examinations are typically more experienced and have broader authority. Field audits often result in larger proposed adjustments.

What is a compliance check?

A compliance check is not an audit.

A compliance check is a review to verify that you are meeting your tax obligations—not an examination of items on a specific return.

What compliance checks verify:

• Whether required returns have been filed
• Whether estimated tax payments are being made
• Whether payroll tax deposits are current
• Whether information returns (W-2s, 1099s) are being filed
• General adherence to filing and payment requirements

Key differences from audits:

• Compliance checks do not examine the accuracy of a filed return
• They do not result in proposed adjustments or additional tax assessments
• They may identify unfiled returns or missing payments
• They are often conducted by compliance officers rather than examiners

Outcome of compliance checks: If a compliance check identifies unfiled returns, you will be asked to file them. If it identifies missing payments, you will be asked to pay. No penalties or interest result from the compliance check itself—though penalties may apply for the underlying delinquencies identified.

How audits are selected

The IRS selects returns for audit through several methods:

• Discriminant Inventory Function (DIF) score — A computer scoring system that rates returns based on likelihood of audit adjustment
• Information matching — When income reported on your return doesn't match income reported to the IRS by third parties
• Related examinations — Your return is connected to another taxpayer being audited (business partner, investor, etc.)
• National Research Program — Random selection for statistical research purposes
• Specific issues — Returns claiming certain credits or deductions subject to enhanced scrutiny

Being selected for audit does not mean you did anything wrong. However, you must respond and substantiate items on your return.

The audit process

Regardless of audit type, the general process follows these stages:

• Initial contact — You receive a notice identifying the audit and requesting information
• Information gathering — You provide documentation for items being examined
• Examination — The IRS reviews your documentation and may ask follow-up questions
• Proposed adjustments — If the IRS proposes changes, you receive a report explaining them
• Agreement or appeal — You can agree to adjustments or appeal through IRS Appeals
• Notice of Deficiency — If disagreement continues, the IRS issues a formal Notice of Deficiency
• Assessment or Tax Court — You pay or petition Tax Court within 90 days

Audit timelines and statutes

How long the IRS has to audit:

• 3 years — General rule from the later of the filing date or due date
• 6 years — If you omitted more than 25% of gross income
• Unlimited — If you filed a fraudulent return or failed to file

How long audits typically take:

• Correspondence audits — 3-6 months
• Office audits — 3-6 months
• Field audits — 6 months to over a year

The IRS may ask you to extend the statute of limitations if they need more time to complete the examination. You can agree or decline.

Audit outcomes

An audit can result in one of three outcomes:

• No change — The IRS accepts your return as filed. No additional tax is owed.
• Agreed adjustment — The IRS proposes changes and you agree. You owe additional tax (or receive a refund if the adjustment is in your favor).
• Unagreed/Disputed — You disagree with the proposed changes. The case proceeds to Appeals or Tax Court.

Most audits result in some adjustment. Receiving an audit notice does not guarantee you owe more tax, but you should take the examination seriously and provide complete documentation.