What to Do When You Get an IRS Audit Notice: A Step-by-Step Guide

Step 1: Confirm the Letter Is Genuine

The IRS notifies taxpayers of an audit by mail. It does not begin an audit by telephone. If a letter or call seems questionable, verify it by contacting the IRS through the phone numbers and addresses published on irs.gov rather than any contact information supplied by the caller.

Step 2: Identify What Kind of Notice You Received

Not every IRS letter is an audit, and the type of notice determines the next step.

CP2000 notice

A CP2000 notice says that income or payment information reported by third parties, such as employers or financial institutions, does not match the return. It is a proposal to adjust the return, not a bill. The IRS asks for a response within 30 days of the notice date (60 days for taxpayers living outside the United States). If the IRS does not hear back by the response date, it will send a statutory notice of deficiency.

Audit by mail

In a correspondence audit, the IRS sends a letter explaining that the return has been selected for examination and listing the information it wants to see. The examination is handled through the mail.

In-person audit

Some audits are conducted through an in-person interview, either at an IRS office (an office audit) or at the taxpayer’s home, place of business, or representative’s office (a field audit).

Notice of deficiency

A notice of deficiency, often called a 90-day letter, is a different kind of document. It generally gives the taxpayer 90 days from the date of the notice (150 days if the notice is addressed to a person outside the United States) to file a petition with the U.S. Tax Court without first paying the tax. This deadline is set by statute and should be calendared the day the notice arrives.

Step 3: Calendar the Deadline and Ask for More Time if Needed

Each letter states a response date. For audits conducted by mail, the IRS says it can ordinarily grant a one-time 30-day extension, and the letter explains how to ask. For an in-person audit, the request goes to the examiner assigned to the case. Ask before the deadline passes, and keep a written record of any extension granted.

Step 4: Gather the Records Requested

Read the information request item by item and collect the records that support each one. Depending on the issue, that may include receipts, invoices, canceled checks, bank and credit card statements, contracts, mileage logs, charitable acknowledgment letters, or closing statements for a property sale.

If a record is missing, a copy can often be obtained from the bank, vendor or other third party. For many expenses, other credible evidence and a written explanation can help. Travel, gifts and vehicle expenses, however, are subject to stricter substantiation rules under Internal Revenue Code section 274(d).

Step 5: Decide Whether to Get Representation

Taxpayers may handle an audit themselves or be represented. A representative must be a person allowed to practice before the IRS, such as an attorney, a certified public accountant or an enrolled agent, and is authorized with Form 2848, Power of Attorney and Declaration of Representative. Representation is worth considering when the audit covers several years, business income or large adjustments, or when an issue could suggest more than an honest mistake.

Step 6: Prepare a Clear, Organized Response

A good response answers each question the letter asks. Include a short cover letter that references the notice date, the tax year and each item under review. Number the supporting documents and refer to them in the letter. Show calculations where they matter, such as the business-use percentage of a home office or vehicle.

Send copies rather than originals, and keep a complete set of everything submitted.

Step 7: Submit on Time and Keep Proof

Use a method the letter allows, such as mail, fax or the IRS document upload tool when it is offered. If mailing, use a service that provides proof of mailing and delivery, such as certified mail with a return receipt. For audits by mail, the IRS states that it will send a letter within 30 days acknowledging receipt of documents submitted by mail or fax.

What Happens After You Respond

An audit generally ends in one of three ways:

• No change: the items under review are substantiated and the return is not changed.
• Agreed: the IRS proposes changes and the taxpayer agrees with them.
• Disagreed: the IRS proposes changes and the taxpayer disagrees.

A taxpayer who disagrees can ask for a conference with the examiner’s manager, request mediation, or appeal to the IRS Independent Office of Appeals if enough time remains on the statute of limitations. In an unagreed case, the IRS generally sends a 30-day letter with the examination report and an explanation of appeal rights. Appeals is separate from and independent of the office that conducted the audit.

If there is no response to the 30-day letter, or no agreement is reached in Appeals, the IRS issues a notice of deficiency, which starts the period for petitioning the Tax Court.

The Bottom Line

An audit letter is a request for information with a deadline attached. Confirming what type of notice it is, meeting or extending the deadline, and responding with organized documentation preserve the most options, including the right to appeal.