There's a letter from the IRS in your mailbox. Before you panic, know this: most IRS audits are correspondence audits — handled entirely by mail. And 56% of audit disputes result in reduced assessments. The IRS isn't infallible, and you have more rights than you think.
Key Takeaways
- 56% of audit disputes result in reduced assessments
- Most audits are correspondence audits (by mail, not in person)
- You typically have 30 days to respond to an audit notice
- You have the right to representation and the right to appeal
- Ignoring the letter is the worst thing you can do
Step 1: Open the Letter and Identify What Type of Audit It Is
IRS audit letters come in several forms:
- CP2000 Notice: The IRS says your reported income doesn't match what third parties reported. This is the most common — and often the easiest to resolve.
- Correspondence Audit (Letter 566): They want documentation for specific deductions or credits. You respond by mail.
- Office Audit (Letter 3572): You need to meet with an IRS examiner at an IRS office. More serious, but still manageable.
- Field Audit: An agent comes to your home or business. The most intensive, usually for business returns or high-income returns.
Step 2: Don't Panic — But Don't Ignore It
The two worst responses to an IRS audit letter: panicking and doing nothing. Here's what to do instead:
- Note the response deadline — usually 30 days from the date on the letter
- Read what they're specifically questioning — it's usually targeted, not your entire return
- Gather the specific documents they request
- Don't volunteer information they didn't ask for — answer only what's asked
What NOT to Do
Do not ignore the letter (they will assess the maximum). Do not call the number on the letter in a panic (prepare first). Do not amend your return without consulting a tax professional. Do not destroy any records. Do not lie or provide false documents — this turns a civil matter into a criminal one.
Step 3: Gather Your Documentation
The IRS letter will list exactly what they want to see. Common requests include:
- Receipts for claimed deductions
- W-2s, 1099s, and other income documents
- Bank and brokerage statements
- Business expense records
- Charitable donation receipts
- Home office measurements and expenses
If you don't have perfect records, don't panic. The IRS accepts reasonable reconstructions — bank statements, credit card records, and written explanations can substitute for lost receipts in many cases.
Step 4: Respond Strategically
For correspondence audits, your written response is everything. Include:
- A cover letter referencing the notice number and tax year
- A clear, organized response to each item questioned
- Supporting documentation, numbered and referenced in your letter
- Only the information they asked for — nothing extra
Send via certified mail with return receipt. Keep copies of everything.
Step 5: Know Your Rights
The IRS Taxpayer Bill of Rights guarantees you:
- The right to be informed — they must explain why they're auditing you
- The right to challenge — you can disagree with their findings
- The right to appeal — you can appeal to an independent office within the IRS
- The right to representation — you can hire a CPA, enrolled agent, or tax attorney
- The right to privacy — they can only request relevant information
Step 6: If You Disagree, Appeal
If the audit results in an assessment you disagree with, you have the right to appeal. The IRS Appeals Office is independent from the examination division, and they settle cases regularly. Your appeal options:
- IRS Appeals: An independent review within the IRS. Most cases settle here.
- Tax Court: You can petition Tax Court without paying first. This is your right.
- Offer in Compromise: If you owe and can't pay, the IRS may accept less than the full amount.