What to Do If You Receive an IRS Audit Notice

Receiving an IRS audit notice can be alarming, but staying calm and taking the right steps can protect your interests. Here's exactly what you need to do.

Step 1: Read the Notice Carefully

The IRS sends different types of audit notices. Common ones include CP2000 (underreported income), CP2501 (discrepancy between reported income and IRS records), and Letter 525 (examination notice). Each requires a different response.

Note the type of audit: correspondence audit (mail), office audit (IRS office visit), or field audit (IRS agent visits you). Also note the deadline for response - typically 30 days.

Step 2: Don't Ignore It

Ignoring an audit notice will not make it go away. Failure to respond can result in the IRS assessing additional taxes, penalties, and interest based on their calculations without your input. Always respond by the deadline, even if you need more time to gather documents.

Step 3: Gather Your Documentation

Collect only the documents requested in the notice. Providing too much information can lead to additional questions. Common documents include:

• Receipts and invoices for deductions questioned
• Bank statements and canceled checks
• Mileage logs for vehicle deductions
• Home office calculations and documentation
• Business records and contracts
• Prior year tax returns if referenced

Step 4: Consider Professional Representation

You have the right to be represented by a CPA, attorney, or enrolled agent. A tax professional can communicate with the IRS on your behalf, understand complex tax law, negotiate on your behalf, and help you avoid common pitfalls that could worsen your situation. In many cases, you won't even need to attend the audit yourself.

Step 5: Respond in Writing

For correspondence audits, respond in writing with copies (never originals) of requested documents. Include a cover letter explaining each document and referencing the notice number. Send via certified mail with return receipt for proof of delivery.

Step 6: Know Your Appeal Rights

If you disagree with the audit findings, you have the right to appeal within the IRS or file a petition in Tax Court. Your representative can help you determine the best course of action based on the amounts involved and the strength of your position.

What NOT to Do

• Don't volunteer extra information - Answer only what's asked
• Don't argue or be confrontational - Stay professional and factual
• Don't agree to something you don't understand - Ask for clarification
• Don't sign anything without review - Have your representative review all documents
• Don't pay immediately - Verify the accuracy of assessments first

How to Prevent Future Audits

While you can't completely eliminate audit risk, you can reduce it by:

• Keeping detailed records and receipts for all deductions
• Being consistent across multiple years
• Avoiding round numbers (use exact amounts)
• Properly reporting all income (IRS receives copies of 1099s and W-2s)
• Being reasonable with deductions relative to your income
• Filing on time and paying any owed taxes