How to get through an IRS correspondence audit

The word "audit" makes people imagine an agent at the kitchen table going through every receipt. In reality, the majority of IRS examinations are correspondence audits: the IRS mails a letter asking you to support a few specific items on your return, you mail or upload documents back, and the case is closed.

Handled well, a correspondence audit is mostly administrative. Handled poorly — ignored, answered late, or answered with a shoebox of unlabeled paper — it can become an expensive adjustment.

The three types of audits

• Correspondence audit: conducted entirely by mail, usually focused on a few line items such as a deduction, a credit or a category of income.
• Office audit: you (or your representative) meet with an IRS employee at a local office with the requested records.
• Field audit: an IRS revenue agent examines records at your home, business or your representative's office. These are broader and more common for larger businesses.

This guide focuses on the first, because it's the one most business owners and contractors will actually see.

First, read the letter carefully

Before doing anything else, confirm three things:

1. It's real. The IRS starts contact by mail. It doesn't open an audit by email, text or social media, and it won't demand payment by gift card. If in doubt, check your IRS online account or call the number on IRS.gov — not the number in a suspicious message.
2. Which year and which items are under examination. The letter or attached information document request will list them.
3. The response date. Write it on your calendar right away.

If the letter proposes changes and a balance due without asking for documents first, you may be looking at a notice rather than an exam — our guide to IRS notices explains the difference.

Building a response that closes the case

Answer exactly what was asked. If the IRS asked about vehicle expenses, send the mileage log, the calculation and the supporting receipts — not your entire return. Extra documents can open new questions.

Organize it like an exhibit. Start with a short cover letter that lists each requested item and the page numbers of the support you're providing. Label every document. Include a summary schedule that ties the documents to the number on the return.

Explain gaps honestly. If a receipt is missing, reconstruct the expense with bank or card statements, calendar entries and a written explanation. The rules allow reasonable reconstruction for many expenses; some categories, such as vehicle and travel costs, have stricter substantiation requirements.

Send it in a trackable way — through the IRS documentation upload tool if the letter offers it, by fax if a number is provided, or certified mail. Keep a complete copy of exactly what you sent.

Need more time? Call or write before the deadline and ask for an extension. Short extensions are commonly granted when requested in time.

If you disagree with the result

After reviewing your response, the IRS will either accept the return as filed, or propose changes in an examination report. If you disagree:

• You can provide additional information or request a conference with the examiner's manager.
• A 30-day letter gives you the right to request an appeal with the IRS Independent Office of Appeals, which is separate from the examination function.
• If the matter isn't resolved, the IRS issues a notice of deficiency — often called the 90-day letter. You then have 90 days (150 if addressed to you outside the U.S.) to petition the U.S. Tax Court. That deadline can't be extended.

Even if you agree with the changes, you can often reduce or remove penalties with a reasonable-cause explanation or, when eligible, first-time abatement.

When to bring in a representative

You can handle a simple correspondence audit yourself. It makes sense to hand it off when the dollar amounts are significant, the issues involve judgment (such as whether an activity is a business or whether a salary was reasonable), your records need reconstruction, or you'd simply rather not talk to the IRS.

A CPA, Enrolled Agent or attorney can represent you under a signed Form 2848 power of attorney. From then on, the IRS contacts your representative instead of you. At ExcelTax, we refer audits to an independent partner CPA and hand them the workpapers we built when we filed — which are usually most of the response.