What Happens in a Tax Audit

Selection is driven by a mix of statistical screening, mismatches between what you reported and what third parties reported about you, industry benchmarking, unusual claims relative to income, and sometimes random selection.

Being audited does not imply the authority believes you have done something wrong. Repeated large deductions, cash-heavy businesses, and significant year-over-year swings simply attract more scrutiny.

Audits range from a narrow request for documents supporting a single item, through to a field audit examining a business's books in depth. The first thing to establish is the scope: which years, which entities, and which issues.

Answer what is asked, accurately and completely, and keep a record of everything provided. Volunteering material outside the scope can widen the review unnecessarily — a common and avoidable mistake.

You are entitled to representation, to understand what is being examined, and to dispute the outcome. An accountant handles most routine reviews well. A tax lawyer becomes important where there is a genuine legal dispute, exposure to significant penalties, any suggestion of misconduct, or a need for legal privilege over advice.

If errors come to light, both countries offer voluntary disclosure routes that can reduce penalties — but generally only if you come forward before the authority raises the issue. That timing is decisive.

If you disagree with an assessment, there is a formal path. In Canada that usually means filing a Notice of Objection, then appealing to the Tax Court if unresolved. In the US, it typically runs through IRS appeals and then the Tax Court.

Both routes run on strict statutory deadlines, and missing one can end your right to dispute regardless of the merits. Treat the date on the assessment as the start of a clock, and ask specifically whether collection continues and interest accrues while you dispute.