1. What Should You Check in an IRS Audit Notice?
An audit notice identifies the return or issues selected for examination. Selection does not establish that additional tax is owed. The first task is to determine what the IRS wants to review and when a response is due.
Identify the Tax Year and Requested Records
Compare the notice with the filed return and supporting schedules. Check the tax year, disputed entries, requested documents, and submission instructions.
An examination request differs from a statutory notice of deficiency. The latter starts a separate period for petitioning the United States Tax Court.
Verify the Notice before Responding
The IRS generally initiates an examination through mailed correspondence. Taxpayers should verify unfamiliar notices through official IRS channels before sharing financial information.
Use an authorized submission method and retain proof of delivery. If more time is needed, request an examination extension before the stated deadline; this does not extend a statutory court deadline.
2. How Does the IRS Examine Tax Returns?
The IRS conducts examinations by mail or through in-person interviews. The format affects where records are reviewed and how taxpayers answer questions.
| Audit Type | Examination Method | Preparation |
|---|---|---|
| Correspondence | Written review of selected return items | Requested documents and explanations |
| Office | Interview at an IRS office | Records addressing disputed entries |
| Field | Examination at a designated location | General ledgers, invoices, and records explaining transactions selected for examination |
Correspondence
- Examination MethodWritten review of selected return items
- PreparationRequested documents and explanations
Office
- Examination MethodInterview at an IRS office
- PreparationRecords addressing disputed entries
Field
- Examination MethodExamination at a designated location
- PreparationGeneral ledgers, invoices, and records explaining transactions selected for examination
Correspondence Audits
A correspondence audit often concerns specific income, deductions, or credits. The notice identifies the records needed to verify those amounts.
Match each disputed figure with relevant evidence. Retain copies and submission confirmations, and avoid sending original records unless the IRS requests them.
Office and Field Audits
In-person examinations may involve questions about bookkeeping, business operations, and individual transactions. Examiners sometimes request additional records as the review develops.
Businesses should identify who prepared the records and who understands the transactions. Missing documentation should be explained accurately rather than replaced with unsupported figures.
3. What Evidence Supports a Tax Return during an Audit?
The IRS examines whether records substantiate the amounts and tax treatment reported. A bank statement may prove payment without establishing that an expense qualifies for a deduction.
For example, an invoice may identify what was purchased, while another record explains its business purpose. Evidence should connect the transaction to the disputed return entry.
Documents Commonly Requested
Different records establish different facts. The relevant evidence depends on the item under examination:
- Income: Forms W-2 and 1099 help verify reported payments, while deposit records may explain differences between reported income and bank activity.
- Expenses: Receipts and invoices establish purchases, while business records help explain whether the expenses qualify for deductions.
- Payroll: Wage records and employment tax returns help reconcile compensation payments with reported payroll taxes.
- Assets: Purchase records and depreciation schedules support the asset's cost basis and claimed depreciation.
- Credits: Eligibility records and supporting calculations help establish whether the taxpayer satisfies the applicable credit requirements.
Self-employed taxpayers may need to reconcile bank deposits with reported receipts. Loans, transfers, and potentially nontaxable deposits should be identified through reliable documentation.
When Original Records Are Missing
Alternative evidence sometimes establishes a transaction when original documents are unavailable. Its sufficiency depends on the applicable substantiation requirements.
Internal Revenue Code § 274(d) imposes stricter proof requirements for certain expenses. Taxpayers should distinguish those expenses from items for which other reliable evidence may suffice.
Related tax audits and adjustments may involve separate accounting or tax-treatment questions.
4. What Happens When the IRS Completes an Examination?
An examination generally ends with no changes, agreed adjustments, or disputed findings. The outcome determines whether the IRS proceeds toward assessment or further administrative review.
No-Change and Agreed Examinations
A no-change examination means the IRS accepted the reviewed items without adjustment. It does not necessarily resolve unrelated years or issues.
When the IRS proposes changes, the examination report identifies the adjustments. A taxpayer who agrees may sign the applicable form, allowing assessment under the relevant procedures.
Disputed Findings and IRS Appeals
A taxpayer who disagrees should identify each contested adjustment and explain the factual or legal grounds. Supporting documents should address those issues directly.
Eligible disputes may proceed to the IRS Independent Office of Appeals. A typical 30-day letter provides a 30-day response period, but other notices and procedures differ.
The applicable protest requirements depend on the case. Broader tax disputes may involve additional administrative or judicial issues.
5. When Can an Audit Dispute Reach Tax Court?
Under Internal Revenue Code § 6213(a), a statutory notice of deficiency generally allows 90 days from mailing to petition the United States Tax Court. The period is generally 150 days when the notice is addressed to a person outside the United States.
The statute also addresses weekends, qualifying legal holidays, and the last filing date specified in the notice. Ordinary discussions with the IRS do not extend this statutory deadline.
Prepayment Review and Refund Litigation
Eligible deficiency cases generally permit Tax Court review before payment of the disputed deficiency. Missing the petition deadline may eliminate that ordinary prepayment route.
Refund litigation follows different procedures. It generally requires payment, a timely administrative refund claim, and satisfaction of applicable filing requirements.
6. How Can Federal Audit Changes Affect State Tax Filings?
Federal tax adjustments may create separate New York State reporting duties. The IRS determines federal issues, while state authorities apply their own tax rules.
Under New York Tax Law § 659, covered federal changes generally must be reported within 90 days after final determination, subject to applicable exceptions. Certain amended federal returns also trigger reporting obligations.
Partnership and Business Reporting
New York Tax Law § 659-a establishes separate rules for covered federal partnership adjustments. Depending on the reporting method and taxpayer's role, particular reports or payments have 90-day or 180-day deadlines.
Other entities may face different requirements. Federal adjustments do not necessarily produce identical state tax changes because state modifications and allocation rules differ.
Relevant state tax compliance obligations should be assessed separately from federal examination deadlines.
7. Can the IRS Reconsider an Audit after Assessment?
Audit reconsideration allows the IRS to review certain assessments when the taxpayer supplies information not previously considered. It also addresses qualifying processing or computational errors.
Under IRS procedures, eligibility generally requires an unpaid assessment or certain disputed credit reversals, together with the applicable supporting grounds. A fully paid liability generally calls for a refund claim rather than ordinary audit reconsideration.
The request should identify disputed adjustments and include relevant evidence. Reconsideration does not extend a Tax Court petition deadline or guarantee a changed assessment.
20 Oct, 2026
