While audits are rare, taking a second look at a tax return is not.
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When people say they’ve been “audited,” they usually mean they received a letter from the IRS. But not every IRS letter signals an audit. It helps to understand how returns are selected — and how issues are handled once they’re identified.
Audit rates are typically very low. According to the 2024 IRS Data Book, the IRS closed roughly 500,000 audits across all return types while processing well over 150 million individual returns and other filings. In other words, well under 1% (about 1/3 of 1%) of individual returns are audited, and most taxpayers will never experience a formal examination.
That seems low, but it’s higher than some other well-known fears. In the U.S., your lifetime odds of being struck by lightning are about 1 in 15,300 (0.0065%), while the odds of being attacked by a shark are roughly 1 in 11,500,000 (0.000009%).
Still, under 1% feels like good odds for taxpayers willing to take a chance. That low rate, however, can be misleading. While full audits are uncommon, returns are routinely reviewed for errors, mismatches, and out-of-range claims, and those reviews lead to IRS contact far more often than audit statistics alone suggest. Here’s what you need to know.
How Returns Are Selected
Most tax returns are never reviewed by a human. The IRS relies heavily on automated systems that scan returns, compare them to statistical norms for similarly situated taxpayers, and computer match reported information against data the IRS already has from third parties, such as employers, banks, and brokers.
And today, with advances in analytics and automation, returns don’t need to look suspicious to be flagged. If reported income doesn’t match a W-2 or 1099, if deductions fall outside expected ranges, or if a credit is claimed when the requirements don’t appear to be met, the return can easily rise to the top. From the IRS’s perspective, it’s low-hanging fruit—issues that can be identified quickly and addressed efficiently.
Of course, being flagged doesn’t mean the IRS has decided you did anything wrong. It means the return stood out enough to merit some follow-up. It’s true that a small number of returns are also selected at random, but most IRS contacts begin because something doesn’t line up with what was expected.
Error Notices Versus Audits
What happens after your return is flagged depends on the type of issue the IRS believes it has identified.
In many cases, the IRS believes it has found a straightforward error. This often involves income reported by a third party but omitted from your tax return, or a deduction or credit that is more than the statutory limit (often based on your income). In those situations, the IRS typically sends a notice proposing a correction and explaining how it calculated the additional tax. These are typically referred to as math notices. You can agree, respond with clarification, or dispute the adjustment. If there’s no response, the IRS can assess the tax without opening an audit.
(You may also notice differences in some of these notices because of H.R. 998. The new law requires the IRS to explain exactly what it believes is wrong, why it made the adjustment, and what right the taxpayer has to challenge it.)
Other issues can’t be resolved automatically. Deductions, credits, or other positions that depend on facts, such as whether an expense was truly business-related, whether someone qualified for a benefit, or whether records support a claim, usually require explanation. When the IRS needs proof rather than math, it can open a formal audit.
This is where the low audit rate can be misleading. While audits are rare, clear discrepancies are not. Taking positions that are easy for the IRS to disprove (such as omitting known income or claiming deductions you don’t qualify for) can draw attention even when the overall audit rate is low.
Types of IRS Audits
An audit is a formal review of a tax return. According to the IRS Data Book, just over three-quarters of audits are correspondence audits (sometimes called paper audits), handled entirely by mail. These typically focus on one or two specific items and ask the taxpayer to provide documentation. For many taxpayers, this exchange of letters is the entire audit.
The rest are in-person audits. Those can be office audits and involve meeting with an IRS examiner at a local IRS office, or field audits, where an IRS agent visits your home or place of business to review your records. Field audits are generally reserved for businesses, high-income taxpayers, or situations involving extensive records.
Why Some Reviews Stay On Paper
The difference between a paper audit and an in-person examination usually comes down to complexity and scale. Simple issues can be reviewed by correspondence. Returns involving businesses, multiple income sources, or significant deductions often require discussion and follow-up, making an in-person review more practical.
In other words, the audit format usually reflects how much work the IRS expects the review to take, not how “bad” the return looks.
Why “Taking a Chance” Can Backfire
While audits are rare, easy-to-prove mistakes are common enforcement targets. With increasingly sophisticated matching systems and algorithms, intentionally omitting income or claiming deductions without meeting the requirements is more likely to attract attention than it once was.
This is especially true for tax breaks based on certain kinds of income—such as temporary deductions tied to tips or overtime—where the IRS can easily compare claims to reported wages and industry norms. Even if the issue never becomes a full audit, responding to notices, finding records, or hiring help to unwind a bad position can be expensive and time-consuming. In many cases, the cost of fixing the problem far exceeds the tax benefit that prompted the risk.
Let’s Look at the Math
Let’s assume that in 2025 you are a single taxpayer reporting $75,000 in income and claiming $12,500 of that as overtime eligible for the new temporary overtime deduction. The tax on that amount is $5,371.50—you saved $2,577.50 by claiming the deduction.
Now assume you weren’t entitled to the deduction — for example, because your job as a manager made you ineligible — and that the IRS doesn’t discover this until a year later, in 2027. That timing isn’t unusual, since the IRS often takes a few years to identify certain issues. The IRS then bills you for the underpayment ($2,577.50) and assesses penalties and interest.
What’s the Damage?
The best-case scenario is that you’re hit with a failure-to-pay penalty plus interest. The underpayment interest rate for individuals is 7% per year, compounded daily (the IRS sets this rate quarterly, and it was 7% throughout 2025 and into early 2026). The failure-to-pay penalty is 0.5% per month, starting after the return’s due date. With that, you’ll owe the IRS $2,912.58—that’s the tax plus penalty and interest. For every month (or part of a month that you don’t pay in full, penalty and interest will continue to accrue).
The most common penalty is likely to be a section 6662 penalty—that’s 20% of the underpayment attributable to negligence (or disregard of the rules) or a substantial understatement. That penalty is $515.50, plus $180.43 in interest (assuming rates stay flat). You’ll owe the IRS $3,273.43—that’s the tax plus penalty and interest. Again, penalty and interest will continue to accrue.
What if the IRS felt like it could prove that the omission was intentional? You could get socked with a 75% civil fraud penalty under section 6663. (This is the most severe civil penalty the IRS can impose short of alleging criminal behavior.)
Willfulness is a higher bar, which is why the IRS tends to stick to 6662 penalties, but not an impossible one: It means the IRS believes the taxpayer knew (or should have known) the position was improper and chose to take it anyway. In that case, you’ll owe $4,691 to the IRS. That’s an extra $1,780 or so purely because the IRS concluded the erroneous position was intentional rather than mistaken. Again, penalty and interest will continue to accrue, and that cost doesn’t take into consideration the expense of paying a tax professional like me to help, or the risk of further scrutiny (if you made the claim again in 2027, expect the IRS to look at that year, too).
What To Do If You Get A Notice
If the IRS sends you a notice, the most important step is to respond promptly. (This is why, when readers ask me for my best advice when dealing with the IRS, I always say to open your mail.)
Read the notice carefully and focus on what the IRS is actually asking for.
If the IRS proposes a change based on information it already has, responding promptly can often resolve the issue without escalation. If the letter says you’re under audit, get organized. Audits are usually limited to specific items, and providing clear, relevant documentation—without over-explaining—is key.
That last bit can be difficult. I almost always advise reaching out to a tax professional to make sure that you provide the IRS exactly what they’re asking for without digging yourself another hole. Returns involving businesses, multiple income streams, or disputed eligibility issues can become complicated quickly. Getting guidance early can reduce stress and stop small issues from becoming expensive ones.
The Big Picture
Most of the time, when the IRS reaches out to taxpayers, it never escalates to a formal audit. Many issues are handled through automated notices and proposed adjustments.
That said, low audit rates don’t protect returns with easily detectable problems. Filing accurately and responding promptly when questions arise does far more to limit risk than relying on the odds alone.
Source: https://www.forbes.com/sites/kellyphillipserb/2026/01/26/why-the-irs-doesnt-need-to-audit-you-to-assess-extra-taxes/
