What Happens When You Get Audited?

By Kim Franke-Folstad · February 14, 2024 · 11 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Happens When You Get Audited?

What is it about the words “tax audit” that so many people find so anxiety-provoking? The idea that the Internal Revenue Service (IRS) could be poring over your tax return can be downright nerve-racking, not to mention the possibility of mistakes found and penalties incurred.

But take a deep, calming breath: Over the last decade, the IRS audit rate has been declining. In 2022 (the most recent data available), the odds of an audit were 3.8 out of every 1,000 returns filed (0.38%), a slight decline from tax year 2021, when the odds of audit were 4.1 out of every 1,000 returns filed (0.41%).

But even so, you likely want to do your best to avoid going through that process. This is an informative, high-level overview of IRS audit triggers, and it should not be considered tax advice. It’s always worth consulting a tax professional for any questions or concerns because taxes are complicated and highly personal.

Read on to learn:

•   What is an audit?

•   What are reasons why someone may get audited?

•   What should you do if you get audited by the IRS?

What Is a Tax Audit?

A tax audit is a process by which the IRS reviews an individual’s or organization’s accounts as well as their financial details to make sure that the information submitted has been reported correctly and in keeping with the prevailing tax laws.

The IRS usually sends a letter when it reaches out to ask for more information, and the letter should let you know specifically what the agency is looking for.

You shouldn’t ever receive a text, email, or phone call from the IRS asking for personal or financial information. If you do, the IRS website offers several steps for checking out and reporting any suspicious contact .

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!

Reasons Why Someone May Get Audited by the IRS

Here’s a closer look at some of the typical IRS audit triggers. Knowing them can help you understand and possibly avoid the process as you work your way through tax season.

•   You’re a high earner. In 2022, the odds that a millionaire was audited by the IRS was 1.1 percent — higher than the average audit rate. If you are a high earner, it may be worthwhile to work with an experienced CPA to ensure you file precisely. You may also want to investigate ways to lower taxable income for high earners.

•   You claimed the Earned Income Tax Credit. The Earned Income Tax Credit, or EITC, is a provision that helps lower- and moderate-income workers and their families receive a tax credit. This can reduce the taxes owed or possibly increase a refund. However, research indicates that those who claim the credit are audited at a higher rate than average, perhaps because the IRS wants to be sure the credit is being used appropriately.

•   You failed to report all your income. When you are issued a W-2 form or 1099 form showing your earnings, the IRS receives a copy too. If your return doesn’t reflect the same figures that they have when they perform a cross-check, you could wind up being audited.

•   You didn’t report all of your stock trades. When you sell stock shares, the funds you receive are taxable unless the investments happen to be a retirement account that is tax-deferred. Both you and the IRS will be sent a particular kind of 1099, a Form 1099-B, reflecting activity, and you will have to report your capital gains and losses when you do your tax return. The tax rate will depend on how long you have held the investment, but it’s important that these transactions be reported and paid up when you file your return.

•   You claim large charitable contributions. If you claim tax deductions for charitable donations of cash or items, it’s important to keep records and receipts. For a donation of cash or goods worth more than $250, the IRS requires you to get a written letter of acknowledgment from the charity by the date you file your taxes. If you’ll deduct at least $500 in donated items, you need to fill out Form 8283. For any items worth more than $5,000, you must attach an appraisal of the item to the form. Large and unsubstantiated contributions can be problematic.

Recommended: Tax-Deductible or Not? Your Guide to End-of-Year Donations

•   You claim a home office. If you are self-employed, you may deduct a percent of your rent, phone bills, and other work-related costs on Schedule C of your return. Another option is to deduct $5 per square foot of space used for business, up to $1,500. However, the IRS has over the years been successful in minimizing this home office deduction on returns, especially since the home office must be for the exclusive purpose of work; it can’t double as, say, a guest room. This means it can be an audit risk to take this on your return.

•   You claim that your car is only used for business. This is another audit red flag. If you are self-employed and depreciate a car on Form 4562 and claim that it’s used for business 100% of the time, you may well be stretching the boundaries of believability. Because it’s unusual that a vehicle wouldn’t also be used for personal transportation, you may trigger an audit with this 100% figure. It can be important that tax deductions for freelancers aren’t too large versus income.

•   You accept cash transactions. If you work in the kind of business where you often get paid in cash, especially large amounts, your return may receive extra scrutiny. The IRS requires individuals and businesses to report cash transactions over the sum of $10,000. Banks must also report potentially suspicious transactions involving cash (for instance, if someone deposits $9,500 in cash one day and $700 the next, thereby skirting the $10,000 reporting threshold).

•   Your business regularly shows losses. Of course, not all businesses are always profitable. But if you’ve started an enterprise and it keeps showing losses, year after year, it might be what triggers an IRS audit. It could look as if you have established this endeavor simply as a way to benefit from some tax deductions. The same can hold true if your business is barely break-even.

Recommended: Tax Loss Carryforward

•   You claim lots of travel and entertainment deductions. What else can trigger a tax audit? Here’s another one for self-employed workers: If you claim a lot of restaurant dinners, travel, and shows as business expenses, you may raise eyebrows at the IRS. This is especially true if the meals and hotels seem more lavish than your business might otherwise qualify for. Save all your receipts and documentation, and know that a high level of these expenses being claimed on Schedule C may get some attention and even an audit.

•   You make errors on your tax return. As you prepare for tax season, you may feel overwhelmed or be in a rush. Or perhaps you’re just not the most detail-oriented person on the planet. But if you make math mistakes on your return or, say, round up numbers to the nearest $10 or $100 because you can’t be bothered with change, heads-up: You may put yourself in line for an audit. Precision and specificity do count.

Quick Money Tip: Direct deposit is the fastest way to get an IRS tax refund. More than 9 out of 10 refunds are issued in less than 21 days using this free service, plus you can track the payment and even split the funds into different bank accounts.

A Few Facts About Tax Audits

Here are a few points to be aware of on the topic of IRS tax audits. They may clarify some concerns that are on your mind.

A Compliance Contact Isn’t Always an Audit

A compliance check is a review done by the IRS to ensure that a taxpayer is adhering to the requirements for recordkeeping and information reporting. It does not relate directly to whether or not a person owes taxes.

There Are Different Types of Audits

Just as there are different kinds of taxes, so too are there different kinds of audits. If you are being audited by the IRS, there are a couple of ways this may happen. Mail audits are fairly common; in these, you mail in documents in response to specific inquiries. Office and field audits are more serious, and the IRS asks for proof of credits and deductions, and may look at your financial records more carefully to see if your tax return is correct. The IRS may be looking for tax evasion on these kinds of audits. The third kind of audit is what’s known as a CP2000 notice. Technically, this isn’t an audit but an underreporter inquiry, and is likely about a discrepancy between your return and the tax documents that were filed with them for the tax year in question.

Some Groups Face Higher Audit Rates than Others

While audit rates have dropped for all income levels, those with incomes below $25,000 and above $500,000 are audited at higher rates than the average.

Good Record Keeping May Offer Protection

If you are audited, it can be very helpful if your records are in good order. That way you can explain the amounts you reported and easily answer questions the IRS may have. This can serve as a good incentive for you to keep your records diligently going forward.

Ignoring the IRS Could Be Costly

What happens when you get audited can of course vary. But one possibility if you are audited is that you may be liable for back taxes not paid and penalties. These penalties typically accrue over time, so the longer you go without paying them, the higher they can be. That’s why it’s a good reason to respond promptly if you do get audited.

💡 Quick Tip: Bank fees eat away at your hard-earned money. To protect your cash, open a checking account with no account fees online — and earn up to 0.50% APY, too.

What to Do if You Get Audited

What if you are one of those few people who is told that your returns are being reviewed? This is what to expect and what to do if you get audited by the IRS:

•   Typically, you will get a letter from the IRS in the mail that will identify an issue (such as your reporting less income than their records show you earned) and requesting a response.

•   It’s wise to gather your documents so you can make your case. It can be smart to send your reply as a clear, concise statement of what your documentation shows and share those records to help prove your point.

•   One important thing to do when you get audited is to reply in a timely manner and make sure your reply gets where it’s going. It can be a wise move to use additional mail services to ensure you have proof of delivery.

•   If you worked with a CPA or an enrolled agent on your return, they can likely advise you. If you used tax-return software, they may also offer help.

•   Your response to the mail inquiry may be enough to resolve the situation. Or the IRS may have additional questions for or requirements of documentation for you. If things escalate to a face-to-face meeting, you may want to have a tax professional work with you and accompany you for guidance and support.

•   Whether it’s a correspondence exam or an in-person audit, you’ll get a printed list of specific records the IRS wants to see. If your audit is being managed by mail, you may be able to send the documents electronically or by mail. (Be sure to get a receipt for delivery.) Note the IRS will generally accept copies and they caution against mailing original documents in. If it isn’t possible to send the documents, you can request an in-person meeting.

•   If you need more time to respond to a correspondence exam, you can fax or email a request for an extension using the contact information in your IRS letter. Or, if you’re being asked to comply with an in-person exam, you can contact the auditor assigned to your case to request an extension.

•   Also worth noting: If the IRS finds discrepancies in your return, it may review returns from up to the last six years to better assess what the situation is.

The Takeaway

No one can guarantee a return won’t be audited by the IRS — even if you aren’t doing any of the things most experts say might put you at higher risk. But if you’re honest about your income and your deductions, keep organized and complete records, take care to enter all information accurately, and double-check your work, you may be able to avoid major problems should you get audited.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.


Are audits always negative?

While IRS audits make most people sweaty-palmed, they can be as simple as answering some questions by mail. They are not necessarily as scary as you may think.

How do I know that I am being audited?

If you are being audited, you will be notified, most likely by mail, by the IRS.

What happens after an audit is conducted?

After an audit is conducted, you will be told the outcome. You may be told you owe taxes and penalties or not. If you are assessed additional taxes and fees, you can complete paperwork and pay them if you agree with the findings. If you don’t, you can contact the auditor to discuss and request a review of the findings. If necessary, the matter can be escalated to Alternative Dispute Resolution (ADR) or you can file an appeal with the IRS Appeals Office.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender