Mainly, there are three kinds of audits.
- The Paper Audit
- The Field Audit
- The Lifestyle Audit
The Paper Audit is rather innocuous. It is an informational audit. The IRS will request that you send in certain informational documents for their review, after which, the audit can be satisfied.
The Field Audit is a bit more invasive. This is when revenue authorities will request to visit your business or your home. Once they arrive, they may request to interview persons related to your financial operations; they may also request to review financial records and other relevant documentation.
The Lifestyle Audit is more observational. Often, this audit may take place without your knowledge. Investigators may visit your city, your business, your home, your vacation homes, your helipad and country club. They will drive by. They may park. They may hang out a while. They may observe the number of expensive, exotic cars parked in your garages. They may observe the personal jet and helicopter that takes you back and forth from business meetings or vacation destinations. Once this observational information is gathered, they may ask you why you are only claiming to make 30K per year in income. After all, your Beverly Hills residential address suggests otherwise.