Audits are conducted to ensure that the correct amount of tax has been paid by the individual or business-no more, no less. General information about each agency's audits is listed below.
Federal Income and Payroll Tax (Internal Revenue Service)
We accept most taxpayers' returns as filed. If we inquire about your return or select it for examination, it does not suggest that you are dishonest. The inquiry or examination may or may not result in more tax. We may close your case without a change or you may receive a refund.
The process of selecting a return for examination usually begins in one of two ways:
- We use computer programs to identify returns that may have incorrect amounts. These programs may be based on information returns, such as Forms 1099 and W-2, on studies of past examinations, or on certain issues identified by compliance projects.
- We use information from outside sources that indicates that a return may have incorrect amounts. These sources may include newspapers, public records, and individuals. If we determine that the information is accurate and reliable, we may use it to select a return for examination.
Publication 556 (Examination of Returns, Appeal Rights, and Claims for Refund) explains the general rules and procedures that the IRS follows in examinations. It explains what happens during an examination and your appeal rights, both within the IRS and in federal court system. It also explains how to file a claim for refund of tax you already paid.
As a taxpayer, you have the right to be treated fairly, professionally,
promptly, and courteously by the IRS employees. Publication 1 (Your Rights as a Taxpayer) explains your rights when dealing with the IRS.
Other resources include: Publication 2017 (Tips to Shorten Your Audit), Publication 3114 (Compliance Check, Audit, Examination or Review), and Publication 3598 (The Audit Reconsideration Process).
State Income Tax (Franchise Tax Board)
If your tax return is selected for an audit, you have the right to a fair examination and a written explanation of all changes we make to your tax return as a result of the audit. It is our goal to treat you courteously and fairly during the entire audit process. For more information about the audit process see Frequently Asked Questions About Your Tax Audit. For appeal rights, see FTB 4058 (California Taxpayers' Bill of Rights).
State Payroll Tax (Employment Development Department )
The EDD conducts payroll tax audits of businesses operating in California. Audits provide education outreach regarding state payroll taxes and ensure that benefit coverage is provided for workers who are entitled to such coverage under the law. For information about the audit process, see DE 231TA (Information Sheet: Employment Tax Audit Process).
Sales & Use, Property, and Special Taxes (Board of Equalization )
In general, accounts are subject to audits in three-year intervals, at the time a permit or license is closed out, or in connection with an audit of another permit or license held by the taxpayer or fee payer. Audits may also be initiated as a result of information received from outside sources. For information on the audit process, read Publication 76 (Audits).