Future Business Leaders of America (FBLA) Personal Finance Practice Test

What does a tax audit involve?

1. An examination of your tax return by the Internal Revenue Service

2. A review of your credit history

3. An assessment of your financial investments

4. A discussion about tax benefits

The correct answer is: An examination of your tax return by the Internal Revenue Service

A tax audit involves an examination of your tax return by the Internal Revenue Service (IRS). During this process, the IRS reviews your filed tax documents to ensure that the information you've provided is accurate, complete, and in compliance with tax laws. The audit can vary in scope, from a straightforward examination of a single item on your return to a more comprehensive review of all aspects of your taxation. This option effectively captures the primary function of an audit, which is to ensure taxpayer compliance and verify the accuracy of reported income, deductions, and credits. It is an essential part of maintaining the integrity of the tax system, allowing the IRS to identify discrepancies and address them accordingly. The other options do not pertain to the process of a tax audit. For instance, reviewing a credit history is unrelated to tax returns, as it focuses on an individual's borrowing history and creditworthiness. An assessment of financial investments might relate to investment performance or risk analysis but not specifically to the details and accuracy of a tax return. A discussion about tax benefits, while relevant to personal finance, does not constitute a direct examination or audit of tax returns.