Understanding IRS Audit Procedures Under IRC §§ 6201, 7602 & Treasury Regulations

Getting audited by the IRS is one of the most feared words in tax law. But what actually happens if you’re selected for an audit? What authority does the IRS have? And what rights do taxpayers retain during the process?

This guide explains the audit process under the Internal Revenue Code and Treasury Regulations — in plain English.

What Is an IRS Audit?

An IRS audit (technically called an “examination”) is the process by which the IRS reviews a taxpayer’s return to verify accuracy.

The IRS’s authority to assess tax is found in Internal Revenue Code § 6201(a):

“The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns are made…”

In short: the IRS has statutory authority to determine and assess additional tax if it believes your return is incorrect.

How Does the IRS Select Returns for Audit?

While the IRS does not publish its exact scoring system, audits are typically triggered by:

• High income levels
• Large charitable deductions
• Disproportionate business losses
• Mismatched 1099 or W-2 reporting
• Cryptocurrency reporting discrepancies
• Cash-intensive businesses

The IRS uses automated systems to flag returns with “audit potential.”

The IRS’s Legal Authority to Investigate

Under IRC § 7602(a), the IRS has broad authority to:

“Examine any books, papers, records, or other data which may be relevant or material…”

The IRS may:

• Issue document requests
• Summon records
• Subpoena third parties (banks, employers, etc.)

This authority is powerful — but not unlimited.

Types of IRS Audits

1️⃣ Correspondence Audit

The most common. Conducted by mail. Typically involves:

• Missing documentation
• Small discrepancies
• Specific line-item questions

2️⃣ Office Audit

You meet an IRS examiner at a local IRS office.

3️⃣ Field Audit

The most comprehensive type. An IRS agent comes to:

• Your home
• Your business
• Your accountant’s office

Field audits are common for businesses and higher-income taxpayers.

Your Rights During an Audit

The IRS must follow the Taxpayer Bill of Rights, which includes:

✔ Right to Representation

Under IRC § 7521(c), a taxpayer may be represented by:

• An attorney
• A CPA
• An enrolled agent

You do not have to attend an audit alone.

✔ Right to Record the Interview

Under IRC § 7521(a)(1), taxpayers may audio-record interviews (with advance notice).

✔ Right to Appeal

If you disagree with the auditor’s findings, you may request review by the IRS Independent Office of Appeals.

What Happens After the Audit?

After reviewing documents, the IRS will issue one of three results:

✅ No Change

The IRS accepts your return.

⚠ Agreed Change

You agree additional tax is owed.

❌ Unagreed Change

The IRS proposes additional tax and penalties.

If you disagree, the IRS will issue a Notice of Deficiency (“90-day letter”) under IRC § 6212.

You then have 90 days to file a petition in the United States Tax Court before assessment.

How Far Back Can the IRS Go?

Under IRC § 6501(a), the IRS generally has 3 years from the filing date to assess additional tax.

Exceptions:

• 6 years if income was understated by more than 25% (§ 6501(e))
• Unlimited if fraud is involved (§ 6501(c)(1))
• Unlimited if no return was filed (§ 6501(c)(3))

Can an Audit Become Criminal?

Yes — but only in cases involving willful fraud.

Civil audits may be referred to the IRS Criminal Investigation Division if evidence of intentional tax evasion is found.

That’s why early professional guidance matters.

Practical Audit Strategy

If you are audited:

1. Do not panic.
2. Do not overshare.
3. Provide only requested documents.
4. Consider professional representation early.
5. Meet deadlines.

Many audits end with minor adjustments — not financial ruin.

Final Thoughts

An IRS audit is a legal process governed by statute. The IRS has broad authority under IRC §§ 6201 and 7602, but taxpayers have defined rights and procedural protections.

The key is preparation, documentation, and professional guidance.

If you receive an audit notice, treat it seriously — but calmly.

At Dino Tax Co, we help clients navigate tax matters ranging from unfiled returns to IRS letters and levies and everything in between with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call or text (713) 397-4678 or email davie@dinotaxco.com. We’re here to help you take the next step.