In a nutshell, there are three different kind of examinations:
1. Live audit -- This is when the IRS has appointed a Revenue Agent to investigate your tax returns. You will receive an IRS letter explaining to call and/or appear at a certain time and date. The audit is often done in-person unless you have a tax professional like myself or my colleagues to represent you over the phone, fax, email, etc. These are pretty intense and usually involve the most complex and in-depth problems with your 1040 returns -- most often for business expenses, i.e., Schedule C.
2. Correspondence audit -- The "correspondence" audit should be done thru the mail usually from Holtsville, NY or Austin, TX. They usually are looking for back up on deductions you made on your Schedule A. You or your tax professional will need to correspond with the IRS to support your deductions and resolve the matter.
3. Underreporting audit -- The under-reporting audit is done for you. You receive a letter that indicates usually income that you overlooked when filing your return. It is very common to get this fixed by amending your return with the 1040x.
