What Happens During an IRS Audit? A Step by Step Guide

What starts an IRS audit?

An IRS audit starts when the agency selects a filed return for examination and sends a notice by mail. Selection can result from computer screening, a statistical comparison, related transactions, or information connected to another examination. Selection alone does not mean the IRS has found an error or believes misconduct occurred.

The IRS audit overview describes an audit as a review of books, accounts, and financial records to check whether return information and the reported tax are correct. It also states that the IRS starts the examination by mail rather than by telephone. A surprise call claiming to open an audit does not match that published first contact process.

The selection method does not dictate the result. A computer screen can compare a return with norms developed from statistically valid samples. A related examination can bring in a transaction involving a partner, investor, or another taxpayer. Third-party information can also raise a question. The opening letter identifies what the examination will actually cover, which is more useful than trying to reconstruct why the return entered the selection system.

An examination is also different from routine return processing. A math correction, refund review, identity verification request, or CP2000 information matching proposal may require a response without being an audit. The existing guide to IRS audit red flags covers selection myths and published coverage data. This article begins after the examination letter arrives.

What are the three types of IRS audit?

IRS examinations are commonly grouped as correspondence, office, and field audits. A correspondence audit is handled by mail. An office audit involves an interview at an IRS office. A field audit takes place at a home, business, or representative's office. Every type begins with written notice and a request for information.

A correspondence examination often focuses on a defined item such as a credit, deduction, expense, or income entry. For example, a CP75 notice asks for documents supporting an Earned Income Tax Credit claim. A broader Letter 566 can open a mail examination and arrive with a document request. The letter identifies the issue more precisely than the general audit label does.

Office and field examinations allow questions and records to be discussed in person. The IRS says the interview may occur at an IRS office, the taxpayer's home or business, or the office of an accountant or other representative. A field examination can involve business books, but its scope still comes from the return, the opening correspondence, and any properly expanded requests made during the examination.

What does the first IRS audit letter tell you?

The first audit letter identifies the return under examination, explains whether the review is by mail or in person, lists requested records, and provides response instructions. It may name an examiner or supply a unit telephone number. The printed due date and delivery method govern the immediate response, not a general online timeline.

The useful details are usually concentrated on the first pages and any enclosed information document request. The tax form and period show which return is open. The list of issues shows whether the IRS is asking about one credit or a broader set of income and expense items. The reply address, fax number, upload instructions, and telephone number identify the office handling the case.

• Match the taxpayer name, identification number, tax form, and tax period to the relevant return.
• Separate each requested item into its own record group instead of treating the letter as one general demand.
• Record the response date shown on the letter and the delivery methods the letter actually authorizes.
• Keep a complete copy of the notice, enclosures, response, and delivery confirmation in one audit file.

The IRS says a mail audit can ordinarily receive a one-time automatic 30-day extension when a written request is sent by fax or mail using the contact details on the letter. That statement does not apply to every later document. In particular, the agency cannot extend the statutory Tax Court petition period printed on a notice of deficiency. Identifying the document before relying on an extension is essential.

What records does the IRS request during an audit?

The IRS requests records connected to the return items being examined. Those records can include receipts, invoices, canceled checks, account statements, mileage or activity logs, legal documents, and records supporting income, dependents, credits, deductions, or asset basis. The opening letter specifies what the examiner wants and the acceptable delivery format.

A bank statement can show that money moved, but it may not explain the business purpose of an expense, the identity of a dependent, or the source of a deposit. Good substantiation connects the return entry to the underlying event. An invoice can identify what was purchased. Proof of payment can show that the transaction occurred. A log can establish the date, purpose, and use where the tax rule requires those facts.

The IRS accepts some electronic records, and the assigned examiner or letter can clarify the permitted format. Sending organized copies preserves originals and helps each document map to a requested issue. Extra material that has no connection to a request can make the response harder to review. The practical goal is a traceable record set, not the greatest possible volume of paper.

What happens while the IRS reviews the records?

During review, the examiner compares submitted records with the return and the issues identified for examination. The IRS may ask follow-up questions, request clearer copies, seek additional documents, or explain a proposed adjustment. In an interview audit, the examiner can discuss transactions and accounting records directly with the taxpayer or authorized representative.

A mail examination often unfolds in rounds. The first response enters an IRS review queue. The examiner can accept the material, ask for something missing, or issue a report proposing changes. The IRS audit page advises obtaining delivery confirmation. For certain mail examination telephone numbers, an individual online account can also show the audit start date, issued letters, and the next response date under Records and Status.

An office or field examination has more direct interaction. The examiner can compare books with the tax return, select transactions for testing, and ask how records were created. Questions may reveal that another document is necessary. They can also show that an item originally under review has been substantiated. The length varies with complexity, information availability, scheduling, and whether the findings are agreed.

The scope can change when the examination uncovers a related issue, but that is not the same as an unlimited review of every financial event. Written requests create a record of what was sought. If a request is unclear or seems unrelated to the identified issue, the contact named on the letter is the source for clarification. A representative can handle that communication when valid authorization is on file.

Can someone represent a taxpayer during an IRS audit?

Yes. A taxpayer may act personally or authorize an eligible representative, commonly an attorney, certified public accountant, or enrolled agent, to deal with the IRS. Form 2848 supplies power of attorney authority. Form 8821 permits another person to inspect or receive information but does not authorize that person to represent the taxpayer.

The current IRS examination process publication explains the difference between representation and access to information. A properly authorized representative can correspond with the IRS and may attend an examination with or without the taxpayer, depending on the matter. A person named only on Form 8821 can receive confidential information for the listed tax and periods but cannot speak as an advocate before the agency.

Joint returns require separate authorization forms from each spouse, even when both choose the same representative. In an in-person interview, Publication 3498 also states that a taxpayer acting without representation can ask to suspend and reschedule the interview to consult a representative, except when attendance results from an administrative summons. A summons is a formal demand for information, documents, testimony, or attendance.

Representation does not replace the underlying records. The representative still needs a clear explanation of each disputed item and access to the documents that support it. Organizing the return, letters, prior responses, and requested evidence before a conference makes the procedural role easier to perform and preserves a consistent file if the case later moves to Appeals.

What happens if an audit letter receives no response?

If the IRS receives no response by the date on an audit letter, it can complete the examination using the information already available and send a report with proposed changes. Continued silence can lead to a 30-day letter and then a notice of deficiency. The exact next step depends on the examination stage.

No response does not make the examination disappear. The IRS audit page states that the agency will complete the audit and send a report with proposed changes when it does not hear back by the date shown. Without supporting records, the examiner may disallow an item because the evidence requested to verify it was never received. That is a procedural result based on the available file rather than proof that every requested fact was false.

Later letters carry different consequences. A Letter 525 usually presents examination changes and offers a period to agree or request Appeals review. If the case reaches a notice of deficiency, the petition period is statutory and the IRS cannot extend it. A taxpayer who missed the original examination may later encounter the separate rules covered in the audit reconsideration guide, but that is not a substitute for the response route still open on a current letter.

How does an IRS audit end?

An IRS audit ends as no change, agreed, or unagreed. No change means the reviewed items were substantiated and the return is accepted as filed. Agreed means the taxpayer accepts proposed changes. Unagreed means the IRS proposes changes that remain disputed, which can open manager review, administrative appeal, or court procedures.

A no change closing letter records that the examination produced no adjustment. It belongs with the return and examination file. An agreed result is documented through an examination report or similar agreement form. If the adjustment creates a balance, tax, applicable penalties, and interest can follow. The payment and collection process is separate from the examination that established the adjustment.

An unagreed result begins with the examiner's explanation of the proposed changes and appeal rights. Publication 3498 says a meeting or telephone conference with the examiner's supervisor may be requested. Certain cases can use an alternative dispute resolution process. If no agreement results, the 30-day letter explains how to accept the changes or ask the IRS Independent Office of Appeals to consider the dispute.

How can proposed audit changes be appealed?

Proposed audit changes can usually be challenged through the instructions in the letter offering appeal rights. A small case request may be available when proposed tax and penalties are $25,000 or less for each period and the case is eligible. Other cases generally require a formal written protest explaining each disputed issue.

The current IRS page on preparing an Appeals request says the protest goes to the address on the letter, not directly to Appeals. The examination office first reviews the protest and attempts to resolve the disputed issues. If it cannot, it sends the file to Appeals. Mailing a protest to an Appeals office can delay the case and may interfere with consideration.

For an eligible small case, Form 12203 or a brief written statement can list each disputed item and explain the disagreement. Publication 3498 states that the general threshold is $25,000 or less in proposed tax and penalties, or claimed refund, for each tax period. Partnerships, S corporations, employee plans, and exempt organizations are among the cases that do not use the small case route.

A formal protest identifies the taxpayer, disputed tax periods, proposed changes, reasons for disagreement, supporting facts, and relevant authority. It also includes the required signature and penalties of perjury statement. New information submitted at Appeals can be returned to the examination office for analysis. Appeals is independent of the IRS function that proposed the adjustment, but it still applies tax law to the developed facts.

If the administrative path does not resolve the case, a notice of deficiency can create a court route. Publication 3498 describes a general 90-day petition period, or 150 days when the notice is addressed to a person outside the United States. The notice itself supplies the exact last date and instructions. If no timely petition is filed, the IRS can assess the proposed amount and send a bill.

What happens after the IRS audit closes?

After an audit closes, the result is recorded and any adjustment moves into ordinary assessment, refund, or collection processing. A no change letter stays with the tax records. An agreed or finally assessed increase can produce a bill. A refund adjustment can produce payment after processing. Later correspondence reflects that next account stage.

The closing result does not always mean additional tax. The IRS can accept the return as filed, propose an increase, or determine that a refund is due. Where a balance results, Publication 3498 points to payment options and the collection process. A payment plan or collection notice addresses the assessed balance. It does not reopen the factual examination unless a separate reconsideration or refund procedure applies.

The complete audit file should preserve the original return, opening letter, document requests, submitted evidence, delivery records, examination report, protest, and closing correspondence. That history can matter if a later notice refers to the adjustment or if another procedure depends on what the IRS previously considered. The separate guide on how far back the IRS can audit explains examination time limits and why they differ from the collection period after assessment.

Tax Panic's Android app can scan a supported IRS notice and provide a plain language explanation of its code, usual urgency, and published response route. It is free to start in the Google Play Store. The app is educational. It does not review audit evidence, prepare a protest, contact the IRS, or provide representation.