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Responding to an IRS Audit Letter: What to Do When the IRS Examines Your Return
Received an IRS audit letter? Learn the types of audits, what documents to gather, how to respond strategically, and how to keep the scope from expanding.
Receiving an IRS audit letter doesn't mean you did anything wrong — it means the IRS wants to verify specific items on your return. Over 70% of IRS audits are correspondence audits handled entirely by mail. Understanding which type of audit you have and how to respond strategically can mean the difference between walking away with nothing owed and a multi-thousand-dollar assessment.
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Types of IRS Audits and What Each Means
Correspondence Audit (Mail Audit) The most common type. The IRS sends a letter asking for documentation of specific items — charitable deductions, business expenses, education credits, home office, etc. You respond by mail within 30-90 days. No face-to-face meeting required.
Common correspondence audit notices: CP75 (Earned Income Tax Credit), CP75A (EITC and other credits), Letter 2205, Letter 566.
Office Audit You're asked to bring documents to a local IRS office. More serious than a correspondence audit; typically for higher-income returns or when the IRS has questions about multiple items.
Field Audit An IRS Revenue Agent visits your home or business. These are rare and reserved for complex returns, business returns, high-income individuals, or situations where the IRS expects significant issues.
Automated Under-Reporter (AUR) Program (CP2000) Not technically an audit — an automated matching process. See the separate CP2000 guide.
| Audit Type | How It Works | Typical Timeline | Stakes |
|---|---|---|---|
| Correspondence | Mail only | 2-6 months | Lower |
| Office | In-person at IRS | 3-12 months | Medium |
| Field | IRS visits you | 6-18 months | Higher |
| Automated | CP2000 letter | 2-4 months | Varies |
What Triggers an IRS Audit?
The IRS uses a Discriminant Function System (DIF) score — a statistical algorithm — to flag returns for audit. High-risk factors include:
- Large charitable deductions relative to income
- Schedule C business losses — especially recurring losses that offset W-2 income
- Home office deduction — especially if combined with other deductions
- Vehicle expense claims — 100% business use claims are rare and scrutinized
- High income — audit rates for $1M+ earners are 10x higher than average
- Cash-intensive businesses (restaurants, retail, trades)
- Missing income — 1099s that don't match
- Rounded numbers — $5,000 in meals, $10,000 in travel suggests estimates
- Prior audit history — if you've been audited and had changes, risk increases
Random selection also occurs — the IRS audits a small percentage of returns purely at random as part of their compliance research. If you're in this group, you did nothing to trigger it.
The Golden Rules of Responding to an Audit Letter
Rule 1: Don't Volunteer Extra Information The IRS is auditing specific items. Answer those questions only. Do not explain deductions they didn't ask about, and don't send documents covering years they didn't request. Every piece of paper you send could open new questions.
Rule 2: Respond on Time Audit letters have deadlines — typically 30 days. Missing the deadline can result in the IRS automatically assessing additional tax. If you need more time, call the number on the letter and request an extension. IRS auditors routinely grant 30-60 day extensions.
Rule 3: Send Only Copies Never send original documents to the IRS. Send clear photocopies. The IRS will not return originals.
Rule 4: Organize Logically Group documents by the specific items the IRS asked about. A table of contents helps. Write the tax year and notice number on every page.
Rule 5: Mail Certified Send all audit responses via USPS certified mail with return receipt. This creates a paper trail of what you sent and when. The IRS has been known to 'lose' documents.
Rule 6: Keep the Examiner Focused The IRS letter specifies which items are under examination. In your response letter, clearly state that you're only responding to those items and that all other items on the return were correctly reported.
Documentation That Usually Resolves an Audit
Charitable Deductions
- Written acknowledgment from the charity for donations over $250
- Bank statements showing the donation
- Receipts for non-cash donations; Form 8283 for donations over $500
- Appraisal for non-cash donations over $5,000
Business Expenses (Schedule C)
- Bank statements for the business account
- Credit card statements
- Receipts (digital or paper)
- Mileage log (date, destination, business purpose, miles) for vehicle deductions
- Business purpose documentation for meals/entertainment
Home Office
- Floor plan showing office dimensions
- Square footage of the home
- Lease or mortgage statement showing full home costs
- Photographs of the dedicated workspace
Education Credits
- Form 1098-T from the institution
- Tuition receipts
- Documentation showing enrollment status
Earned Income Tax Credit
- Birth certificates for qualifying children
- School records, medical records, or daycare records showing the child lived with you
- Proof you meet income requirements
What Happens If the Audit Goes Against You
If the IRS auditor proposes changes you disagree with, you have several options:
1. Agree with the proposed changes If the examiner is right (or close enough that it's not worth fighting), sign the agreement form and pay what's owed. You can still request penalty abatement separately.
2. Request a conference with the examiner's supervisor Auditors can make mistakes. A polite request to discuss the matter with their manager sometimes resolves issues that the original examiner was wrong about.
3. Appeal to the IRS Office of Appeals Filing a written protest sends your case to an independent appeals officer who has authority to settle cases without going to court. The Appeals process resolves about 80% of cases. You must file within 30 days of the examiner's final determination.
4. Petition Tax Court If Appeals doesn't resolve the case, or if you receive a 90-day Statutory Notice of Deficiency (SNOD), you have 90 days to petition the U.S. Tax Court without paying the tax first. This is the only court where you can dispute the tax without paying it upfront.
5. Pay and sue for refund Pay the tax, then file a claim for refund. If denied, sue the IRS in U.S. District Court or the U.S. Court of Federal Claims. Some taxpayers prefer this route because judges in these courts have no tax expertise requirement — they're regular federal judges.
Audit Reconsideration: A Second Chance
If you didn't respond to an audit, had a default assessment, or have new documents that weren't available during the audit, you can request Audit Reconsideration.
Audit Reconsideration allows the IRS to take a second look at your case without requiring you to go through the formal Appeals process. It's available if:
- You didn't appear or respond during the original audit
- You have new evidence not considered during the audit
- The IRS made a computational error
- You didn't agree with the audit results but didn't appeal in time
Submit a written request (no specific form required) explaining why you're requesting reconsideration and attach the supporting documentation. The IRS has discretion to accept or reject reconsideration requests, but they typically grant them for legitimate new evidence.
Note: Audit reconsideration is NOT available if you previously agreed to the tax in writing or if you've already had a Tax Court decision on the issue.
Should You Hire Representation for an Audit?
Handle it yourself if:
- It's a simple correspondence audit asking for one or two documents
- You have all the documentation readily available
- The amount at stake is small (under $2,000)
- The audit is limited to a single clear item (a missing 1099, for example)
Get professional help if:
- The audit is an office audit or field audit
- Multiple items are under examination
- The potential additional tax is significant (over $5,000)
- The IRS is examining your business
- You have unreported income
- You're subject to a prior audit and this is a repeat examination
- You feel overwhelmed or unsure how to respond
Who to hire:
- CPA: Best for complex return issues; can represent you before the IRS
- Enrolled Agent: Specialists in IRS practice; often cheapest for audit representation
- Tax Attorney: Best for complex issues, potential criminal referrals, or when Tax Court is likely
You can authorize a representative by filing Form 2848 (Power of Attorney), after which the IRS communicates through them rather than contacting you directly.
Frequently Asked Questions
Quick answers to the most common questions on this topic.
How many years back can the IRS audit me?
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Generally, the IRS has 3 years from the date your return was filed (or due, whichever is later) to audit it. For substantial underreporting (omitting 25%+ of gross income), the statute extends to 6 years. For fraud or failure to file, there's no statute of limitations. The IRS can audit indefinitely for returns never filed.
Does the IRS audit the same person multiple times?
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Yes, though it's more common in some situations. If the IRS found significant issues in a prior audit, they may flag future returns for heightened review. Cash businesses and self-employed individuals with Schedule C losses are at higher ongoing audit risk. The IRS also has a 'repetitive audit' policy that can be invoked if they examine the same item for 2+ consecutive years with no change.
What if I made an error on my return but the IRS is only auditing something else?
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You're generally not required to volunteer information about issues outside the scope of the audit. However, if you're concerned about a significant error, a proactive amended return (Form 1040-X) before the IRS discovers it demonstrates good faith and often results in no penalties. Consult a tax professional before deciding.
Can the audit expand to other years?
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Yes. If the auditor finds significant issues in one year, they can expand the audit to prior and subsequent years. This is more common in field audits. One reason to strictly limit your responses to what's asked — and not volunteer additional information — is to minimize the risk of scope expansion.
What's the difference between an audit and an IRS examination?
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They're the same thing. 'Examination' is the IRS's official term; 'audit' is the common term. The IRS prefers 'examination' in their formal communications, but the process, rights, and procedures are identical.