If you find out that you have been selected for an IRS examination, you may easily become nervous about what to expect. An IRS examination, commonly referred to as an audit, is a detailed review of your financial situation. In most cases, the agency will only discuss specific matters that relate to a certain tax year. Do you know what exactly happens at an IRS examination? Do you need to do anything to prepare for it? 

Scheduling the Date and Time of the Examination

Before the interview, you'll receive a phone call from an IRS representative, who will schedule the date and time for the examination with you. While the agency may be willing to accommodate your schedule, the representative will expect you to cooperate with the process by selecting a date and then sticking to it. Before the phone conversation ends, the representative will inform you which tax year is under review and which issues will be covered during the examination.

Gathering the Necessary Tax Documents

After the phone call, you'll receive a written notice from the IRS called an Information Document Request (Form 4564). On the form, you'll see a complete list of the income tax documents you'll need to submit to the IRS in advance of the interview. Be sure to read the deadline for document submission so that you can send in your forms on time. In most cases, you'll have between two and four weeks to comply.

If any of the documents on the list sound unfamiliar, you can contact the IRS representative to ask questions or to request clarification. If you don't send in the necessary documents by the deadline, you'll likely receive additional Information Document Requests until the agency has all the required paperwork.

What Happens at an IRS Examination?

An IRS examination often consists of a series of questions that relate to your tax return. You'll be allowed to use your forms to answer the questions, but you should also be familiar with your finances enough that you can respond directly to the representative.

During the interview, you might be asked about such matters as your income for the year, the number of W-2 or 1099s you report, and whether you are a salaried employee or an independent contractor. If you have employees of your own, you may have to answer questions about your payroll management method, the way you withhold your business's payroll taxes and the fringe benefits you provide to your workers.

Having a good idea of what to expect during an IRS examination will help you to ease your nerves and prepare for the interview. If you're well prepared for the examination and cooperative during the process, you'll likely find that the experience of an IRS examination is far less unpleasant than you think.