Introduction

A refund audit examines whether the refund you claimed on your tax return is correct and supported by records. The IRS increasingly uses data matching and automated analytics to flag returns that deviate from norms or conflict with third‑party reports (IRS). This article explains the most common triggers, practical prevention steps, and what to do if you get a letter.

Common triggers for a refund audit

  • Third‑party mismatches: Reported wages, interest, dividends, or contractor payments that don’t match W‑2s/1099s. The IRS cross‑checks third‑party information statements and flags discrepancies (IRS).
  • Large or unusual refunds: Refunds that are large relative to your income or that involve multiple refundable credits can attract attention.
  • High or unsupported deductions: Big charitable gifts, home office claims on Schedule C, or unusually large business expenses without records.
  • Repeated business losses: Serial losses on Schedule C or rental activity that looks more like a hobby than a business.
  • Risky refundable credits: Earned Income Tax Credit (EITC) and Additional Child Tax Credit historically generate more reviews because of complex eligibility rules.
  • Frequent amended returns or corrections: Multiple filings that change reported income or credits can raise flags.

Types of refund audits you may see

  • Correspondence audit: The IRS requests specific documents by mail. This is the most common and least invasive type.
  • Office or field audit: Less common for refund claims; may be requested when records need in‑person review.

Practical steps to avoid a refund audit

  1. Reconcile your return with third‑party forms before you file
  • Verify W‑2s, 1099s, and brokerage statements match what you enter. Small mismatches are a leading cause of automated flags.
  1. Substantiate deductions and credits
  • Keep receipts, bank statements, canceled checks, invoices, and contemporaneous logs (e.g., mileage logs for business use of a vehicle). See the IRS recordkeeping guidance (IRS).
  1. Be conservative and precise with refundable credits and business losses
  • Only claim the EITC, refundable portions of the Child Tax Credit, or repeated business losses when you meet IRS tests and have documentation.
  1. Use reliable tax preparation and review
  • A qualified preparer or CPA can reduce errors. But remember: using a preparer doesn’t transfer legal responsibility—you remain accountable for your return.
  1. Consider automated recordkeeping
  • Tools that tie receipts to transactions reduce human error and speed audits. For more on automation, see our guide: Recordkeeping Automation Tools That Reduce Audit Risk (internal link).

If the IRS contacts you about a refund

  • Read the notice carefully and respond by the deadline. Most correspondence audits begin with a letter asking for documents.
  • Supply only the documents requested—don’t volunteer extra information without counsel.
  • If you disagree, you can appeal or request a conference with the IRS independent office; see appeals options (internal link: How Amended Returns Affect Your Audit Risk: Practical Tips for guidance on changing returns and audit signaling).

Record retention: how long to keep documents

  • Generally keep records for at least three years after the date you filed or two years from the date the tax was paid, whichever is later. Keep records up to six years if you understate income by 25% or longer for suspected fraud—see IRS recordkeeping timelines (IRS).

Quick checklist to lower audit risk

  • Check all W‑2s/1099s against your return
  • Keep receipts and a clear record trail for deductions
  • Avoid claiming large refunds or credits without documentation
  • Use a reputable preparer and review the final return
  • Respond promptly to IRS notices and keep copies of all correspondence

Internal resources

Authoritative sources

Professional disclaimer

This article is educational and does not constitute personalized tax advice. For guidance specific to your situation, consult a qualified tax professional or CPA.