1. Audits can start small but end up in LARGE problems.

A simple question about a line item on a return can balloon quickly into a full examination of your entire return. This may lead them to examine your personal finances and bank accounts, even your business interests. In some cases, an audit may even lead to an examination of your family, your friends, or your business partners.

2. Audits create more audits.

Auditors have the power to audit additional years when they have sufficient cause to do so. A one-year assessment can turn into three years of assessments, potentially tripling your liability and exposure. This may even flag you for future audits, leaving you under the microscope.

3. Sometimes your State piggybacks the IRS audit.

If the IRS makes changes to your return, and those changes would affect your taxable income according to the tax rules of your state, there is a good chance your state may issue an assessment as well, with its own penalties and interest attached.

4. Your approach matters.

A competent, timely response can limit your exposure, your liability, and your headaches. A proper understanding of audit rules can limit the scope of the examination, prevent allowable expenses and deductions from being removed, and potentially prevent future repercussions.