So IRS audits have a lot of bad connotations that surround them but on a very basic level an IRS audit is the IRS coming in and checking that your tax return was filed correctly. What the IRS is looking for in an IRS audit is they’re looking for one of two things. Number one they’re looking for any income that wasn’t reported or income that wasn’t reported correctly and number two any expenses and/or credits that were not being accounted for properly or not taken appropriately. The combination of income and expenses contributes to your taxable income and the amount of tax you pay so essentially what the IRS is doing is they’re coming in and just verifying that the information is correct. Now what I tell my clients is that tax returns tell a story. So for example you were sitting, you’re watching this video and you have a tax return and that tax return contains a treasure trove of information about you. It tells whether or not you’re married, it tells whether or not you have kids, it says where you live, it says where you earn income from and it says to some limited degree
what you spend money on. When the IRS comes in for an audit, chances are they’re auditing you because that story doesn’t match or something doesn’t make sense based on what you’re telling the government. So for example if you make thirty thousand dollars a year and you live in Beverly Hills that may be something that the IRS might want to look at. Consequently if you make multiple millions of dollars in live a low-income neighborhood that’s something the IRS might want to check. If you’re a tax attorney and you have a large deduction for international travel there could be a very good reason for that or there could not be a very good reason for that so those are things that the IRS just looks at. They look at expenses, they look at your income, they look at the story that your return is telling so even though an audit has a lot of negative connotations, essentially that’s what it is.