An audit that is conducted by the Internal Revenue Service (IRS) or a state tax authority. An audit may be done randomly, or may be undertaken because the tax authority believes that there is a problem with the taxpayerÂ’s return. If an audit finds an error or a misstatement on the tax return, the taxpayer may have to pay back taxes as well as interest and penalties. Taxpayers can appeal any judgments by the IRS through the IRSÂ’s appeals process and the U.S. Tax Court.