tax audit investment & finance definition

An audit that is conducted by the Internal Revenue Service (IRS) or a state tax authority. An audit may be done randomly, or may be undertaken because the tax authority believes that there is a problem with the taxpayer’s return. If an audit finds an error or a misstatement on the tax return, the taxpayer may have to pay back taxes as well as interest and penalties. Taxpayers can appeal any judgments by the IRS through the IRS’s appeals process and the U.S. Tax Court.