What does a tax audit entail?

A tax audit involves a thorough examination of a taxpayer's financial information and tax returns by the IRS. This process is initiated to verify that the information reported on tax returns is accurate and complies with tax laws. During an audit, the IRS may request various documentation, such as receipts, invoices, and bank statements, to support the income and deductions claimed. The objective of the audit is to ensure compliance and identify any discrepancies that may lead to additional tax liabilities.

The focus of this process is not informal or casual; it is a formal audit that can lead to assessments or modifications of the taxpayer's financial obligations. Unlike informal reviews or scheduled meetings with tax advisors, an audit is a more structured and official inquiry. Additionally, the purpose of an audit is not to increase refunds; rather, it is to ensure that taxpayers report their financial activities accurately according to the law. Therefore, the correct choice illustrates the seriousness and process of an IRS tax audit.