By: Alexis Whitley, Esq. and reviewed by Tatum Perez , Esq.
A foundational principle underpinning the tax system of the United States is voluntary compliance . This voluntary compliance principle means that taxpayers are responsible for determining the correct amount of taxes they owe and for filing complete and accurate returns reflecting this information, rather than having the federal government determine their taxes. Although referred to as “voluntary,” taxpayers are obligated to file tax returns if they have received more than a statutorily determined amount of gross income. These amounts vary depending on the age and filing status of the taxpayer. For example, as of the 2024 tax year , single individuals under the age of 65 must file a tax return if their gross income was $14,600 or more, while single individuals above the age of 65 must file if their gross income was $16,550 or more.
To enforce this voluntary compliance system, the Internal Revenue Service (“IRS”) performs audits (also referred to as examinations) to determine whether information reported on a tax return is complete and accurate. The IRS will review taxpayer returns and then examine their books and records to ensure reported information is correct. Historic underfunding , coupled with the current workforce cuts ongoing in 2025, results in a minority of tax returns being audited thoroughly. In 2019 , over 157 million individual tax returns were filed, but only 0.22% were audited. In the same year, over 1.5 million corporate tax returns were filed, with only 0.29% audited. Generally, the higher the income, the higher the chance of an audit.
The IRS selects returns for audit in a variety of ways. For example, the IRS can use random selection and computer screening based on statistical formulas for similar returns to identify anomalies. Returns might also be selected if they are related to other returns picked up for audit. Some returns are selected when the information reported does not match other information reported, such as on Forms W-2 or Forms 1099. Further, certain returns might be audited based on their association with specific industries or tax credits, including conservation easements, cannabis businesses, the earned income tax credit, or the child tax credit. Ultimately, the IRS selects returns for audit because the agency suspects that, due to understatements of income or overstatements of deductions, the taxpayer has not correctly reported their tax due.
If a taxpayer is selected for audit, the IRS will send notice by mail . Audits are conducted either by mail or in person. To initiate a mail audit (also referred to as a correspondence exam), the IRS will send the taxpayer a letter requesting additional information about items on the taxpayer’s return, such as substantiation for income, expenses, and deductions. During mail audits, the taxpayer may represent themselves or engage an attorney, accountant, enrolled agent or actuary, or preparer to represent them. In order to have another individual to represent the taxpayer, Form 2848, Power of Attorney and Declaration of Representative, must be completed and filed with the IRS.
In-person audits begin when the IRS notifies the taxpayer that their return has been chosen for examination and provides information as to what documentation the taxpayer must provide. Similar to mail audits, taxpayers may represent themselves or engage another qualified individual to represent them. An in-person audit can be either an office audit, where the audit takes place in an IRS office, or a field audit, where the audit takes place at the taxpayer’s home, place of business, or the office of the taxpayer’s representative.
IRS audits can be complex and detailed, but Greenspoon Marder attorneys are available to assist taxpayers. Contact Tatum Perez at tatum.perez@gmlaw.com with questions. Please click here to view part two of this blog series entitled “The Basics of IRS Audits: What Are My Rights , When Should I Respond, and How Do I Appeal?” for further information on taxpayer rights during an audit.
About Greenspoon Marder Greenspoon Marder LLP is a full-service law firm with over 225 attorneys and more than 20 office locations across the United States. With operations from Miami to New York and from Denver to Los Angeles, our firm attracts some of the nation’s top talent in key markets and innovation hubs. Our core practice areas include Real Estate, Litigation, and Transactional Services, complemented by the capabilities of a full-service firm. Greenspoon Marder has maintained a spot on The American Lawyer’s Am Law 200 as one of the top law firms in the U.S. since 2015, and our goal is to provide exceptional client service by developing a thorough understanding of each client’s business needs and objectives in order to provide strategic, cost-effective solutions.
MEDIA CONTACT
Natalie Villanueva, Director of Marketingnatalie.villanueva@gmlaw.com
This Greenspoon Marder LLP Client Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.
