The word audits can make you break out in a sweat, but a little understanding about what IRS audits are and how they work may make you more comfortable. Some audits are no big deal but some can be onerous. Identity the type of tax audit that's being conducted so you know what's involved.

As the name implies, these are tax audits handled through the mail. The first type of correspondence is a letter sent to you by the IRS to claim you owe the government money. While not technically an audit, the failure to resolve the initial matter may devolve into an audit. A simple letter from the IRS can result from:

• A math error on your part on your tax return (for example, you meant to report $2,500 in income but only reported $500, so you owe taxes on the omitted $2,000).
• An omission of income on your tax return that's been reported to the IRS on an information return (e.g., your W-2 form, a 1099 for certain investments or independent contractor income, or a Schedule K-1 for an interest in a partnership, S corporation, trust or estate).

If you get such a letter, you can agree that the fault was yours and pay the bill (taxes, interest, and in some cases, penalties), something you can decide yourself if the mistake is obvious and wholly yours. Or you can disagree and proceed to further examination of the specific items in contention (which may continue to be handled by correspondence or on the telephone). You may want to bring in a tax professional if you don't feel comfortable arguing your position (e.g., the IRS says you didn't include income on your return that you, and your preparer, believe is not taxable).

The second type of letter you may get from the IRS is one asking for certain documents to support a deduction (see 7 Most Overlooked Tax Deductions) or other position taken on your return; this is a correspondence audit. Maybe the IRS wants to see a written acknowledgment from a charity for a contribution you deducted; maybe you need to supply a canceled check or credit-card statement for another deductible expense. Mailing the requested proof can easily resolve the matter.

If you don't have the proof, you may want to pay up in order to close the matter (e.g., the amount involved is minimal and you believe your time and effort in pursuing this further is more valuable). You can continue to argue your point through IRS channels (all of which will be spelled out in further correspondence from the IRS), and ultimately litigate (if the issue is significant enough to justify your time and the cost of a professional if you choose to have representation).

Note: If you paid a pro to prepare your return, this professional can represent you but may charge by the hour for this service. If you used tax return preparation software, you may have audit representation if the program gave it to you or you bought it.

The IRS may want to interview you in person regarding specific items on your return. You'll receive a letter asking you to come to a designated IRS office on a particular date (the appointment can be rescheduled for your convenience as long as the IRS agrees). You can bring a CPA or other tax professional for representation, which may be a good idea so your actions won't expand the IRS's inquiries beyond those specified in the audit letter.

An audit may result in no change to your return, or a finding that you owe taxes, or even a finding that the IRS owes you a refund. Again, an unfavorable initial determination by the IRS agent you meet with is not necessarily final. You have a right to appeal it and, if still not satisfied, go to court. (See How To Appeal Your IRS Audit.)

This is an audit where an IRS agent comes to your home, your place of business if you're the owner or your accountant's office. This audit is more intrusive, literally (because of the presence of the agent on your turf) and technically (because the audit is not limited to specific items). While such audits for individuals are very rare, if you are selected for this audit it's advisable that you are not alone; have a tax pro by your side.

These are the most dreaded audits of all. Taxpayers are chosen at random to have every line on their return examined. These audits only occur once in a great while under the National Research Program (NRP). They are conducted to give the IRS data used to conduct future targeted audits, but taxpayers who go through them may owe additional taxes, interest and penalties.

IRS audit statistics show that your chances of being audited are slim (only 0.86% of individuals were audited in 2014), although the risk is higher for those with income over $100,000. IRS budget constraints make it likely that the chances of being audited are only going to be lower in the near future. Still, if you should find yourself under an audit, know how they work and your rights in the process. Find more information in IRS Publication 556.