A tax audit is an examination of an organization's or individual's tax returns and financial records by tax authorities to verify the accuracy of income, deductions, and overall tax liability. It ensures compliance with tax laws and helps to prevent underreporting of income or overstatement of deductions.

A tax audit can be triggered for several reasons, including:

• Random selection by the tax authority.
• Discrepancies or red flags in the tax return.
• Significant changes in income or deductions compared to previous years.
• Claiming unusual deductions or credits.
• Mismatched information reported by third parties (e.g., employers, banks).

There are generally three types of tax audits:

1. Correspondence Audit: A minor audit conducted by mail, typically involving specific questions or document requests.
2. Office Audit: Conducted at the tax authority’s office, focusing on particular items on the return.
3. Field Audit: The most comprehensive type, involving an in-person visit to the taxpayer’s business or home to examine records.

To prepare for a tax audit:

• Gather all relevant documents, such as receipts, bank statements, and financial records.
• Review your tax returns and ensure all information is correct.
• Be prepared to explain discrepancies or unusual items.
• Consult a tax professional to help you prepare and represent you during the audit.

If errors or discrepancies are found during a tax audit, you may need to pay additional taxes along with interest and possible penalties. Depending on the severity, penalties can vary. In some cases, if an error is due to negligence or fraud, the consequences may include larger fines or legal actions.

The duration of a tax audit depends on the complexity of the case, the type of audit, and the responsiveness of the taxpayer. Correspondence audits may be resolved in a few weeks, while field audits can take several months, especially if additional documentation is required or if there are numerous issues to address.