Dictionary of Finance and Investment Terms: tax audit
tax audit
audit by the Internal Revenue Service (IRS), or state or local tax collecting agency, to determine if a taxpayer paid the correctamount of tax. Returns will be chosen for audits if they have suspiciously high claims for deductions or credits, or if reported income is suspiciously low, or if computer matching of income uncovers discrepancies. Audits may be done on a relatively superficial level, or in great depth. If the auditor finds a tax deficiency, the taxpayer may have to pay back-taxes, as well as interest and penalties. The taxpayer does have the right of appeal through the IRS appeals process and, if warranted, to the U.S. Tax Court and even the U.S. Supreme Court.
