An IRS audit is serious enough that you should never ignore it, but not serious enough to lose sleep over if you respond appropriately. The outcome depends entirely on what triggered the audit, how well documented your records are, and how you handle the process.

Most audits are correspondence audits. The IRS sends a letter asking for documentation to support a specific item on your return. Maybe they want proof of a charitable donation or verification of a business expense. You send the documents, they review them, and that’s often the end of it. These audits are common and usually straightforward if you kept your records.

Office audits are more involved. You or your representative meet with an IRS examiner at a local office to review multiple items on your return. These take more time and require more preparation, but they’re manageable with proper documentation.

Field audits are the most serious type. An examiner comes to your business or your accountant’s office to review your books and records in detail. These typically happen with larger businesses or when the IRS suspects significant underreporting. Field audits can last weeks or months and often result in larger adjustments.

The potential consequences depend on what the audit finds. If you made honest mistakes, you’ll likely owe additional tax plus interest. The interest rate compounds daily, so delays in resolving the audit cost you money. If the IRS determines you were careless or negligent, they add accuracy-related penalties of 20% of the underpayment. Fraud penalties can reach 75%. Criminal referrals are rare and happen when there’s evidence of willful tax evasion, not just errors or aggressive positions.

What makes audits more serious than they need to be is poor response. Ignoring notices leads to automatic assessments. Missing deadlines forfeits your appeal rights. Talking to examiners without understanding what you’re agreeing to can create problems that were avoidable.

Having clean books from the start makes everything easier. A Phoenix area bookkeeper who understands your industry keeps records organized the way an examiner expects to see them. When the documentation is solid, there’s less to argue about.

You have the right to representation during an audit. An Enrolled Agent can handle all communication with the IRS, attend audit meetings on your behalf, and negotiate outcomes. IRS representation means you don’t have to sit through interviews or try to explain your records to an examiner looking for problems. It takes the burden off you and keeps the process professional.

The business owners who get hurt by audits are the ones who ignore notices, try to handle it themselves without understanding the process, or didn’t keep documentation for their deductions in the first place. Take it seriously, respond properly, and get help if you need it. That’s the formula for getting through it without major damage.