Chapter 2- IRS Audits and Underreporter Issues and Solutions

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IRS Audits and Underreporter Notices

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INTRODUCTION

If you want to:
Understand IRS compliance programs that challenge the accuracy of a return and how these processes work.
Resolve Automated Underreporter (AUR) Notices (CP2000 and 2501 notices).
Respond to and resolve IRS mail audits.
Manage an IRS office or field audit.
Obtain templates forms and worksheets to use for use in AUR and audit issues.
Obtain IRS forms to use in resolving CP2000 and audits.
Common IRS underreporter and audit notices.
IRS Publications on underreporter, audit, and appeals issues.

Key Highlights:

• Inaccurate tax returns are the IRS’s #1 compliance problem: the U.S. Treasury loses $539 billion a year (2022 measurement year) due to inaccurate tax returns. The IRS uses e-file rejections, math errors, matching notices, and audits as their primary efforts to combat inaccurate tax return filings.
• Underreporter Notices are the most common return challenge enforcement program: the IRS automated matching program (CP2000 and CP2501 notice program) issued over 1.15 million notices of return discrepancies in 2024. This underreporter program continues to be the most common method the IRS challenges the accuracy of a tax return.
• Audits are rare: since 2010, audits have been steadily on the decline. Only 0.27% of all individual taxpayers were audited in 2024. The extremely low audit rates in 2019-2024 are due largely to limited IRS compliance enforcement personnel. The most commonly audited individual taxpayers are those who claim refundable credits, have small businesses, or are high-income taxpayers.
• Most audits are done by mail and are automated: 77% of all audits are mail audits in which the taxpayer needs to provide evidence of 2-4 issues. The most common issue is qualifying for the earned income tax credit. The mail audit process produces automated letters which can cause problems for the taxpayer.
• Office and field audits are the most comprehensive tax return challenges: face-to-face audits (office and field audits) with IRS auditors involve the most complex issues. IRS auditors will also closely examine the taxpayer’s finances for unreported income. Office and field audits have the highest likelihood for large deficiencies and disagreements that require the taxpayer to petition the determination to the IRS Independent Office of Appeals.
• Follow specific procedures that protect taxpayer rights: underreporter notices and audits follow deficiency procedures which allow the taxpayer to appeal unagreed issues to the IRS Independent Office of Appeals and to the U.S. Tax Court before the taxpayer is assessed the tax.

Underreporter Solution Grid

Audit Solution Grid

What’s New for 2025?

• The IRS did increase their auditors by almost 30% in 2024 and 2025. However, audits decreased as many agents were being trained. In 2025, the IRS experienced substantial cutbacks in enforcement resources, resulting in the loss of many of its face-to-face auditors (mostly revenue agents). The impact will be reduced number of complex audits to wealthy individuals and larger businesses. The overall impact has not yet been understood.
• The IRS again suspended the lower-filing threshold for Forms 1099-K until 2026 tax year. For 2025, the IRS announced that third-party payment organizations have a 1099-K filing threshold of $2,500. [IR-2024-299, Nov. 26, 2024] However, the IRS continues to actively match information statements reported under business EIN (Forms 1099-MISC, 1099-K, etc.) to individual Schedule C filed returns as part of the CP2000 notice program.
• The IRS continues to update online response tools for audits and underreporter notices, making it easier to reply and message IRS tax examiners in mail audits and CP2000 notices. Taxpayers can now routinely use the IRS’ Document Upload Tool and Secure Messaging online applications to respond to mail audits and CP2000 notices.

What’s Covered in This Section?

• What to expect in the AUR, audit, and appeals compliance enforcement actions
• The IRS processes for AUR, mail audits, office audits, and field audits, and how-to resolve each of these compliance enforcement actions
• Step-by-step approach to responding to a CP2000 notice and a mail audit, including the format and best practices to use in the response
• Specific audit steps taken by the IRS in office and field audits, including how the IRS auditor will examine income
• How to manage and best represent the taxpayer’s position in an office or field audit
• How to appeal unagreed issues in tax return challenges
• Resources to help the taxpayer in understanding the audit process and resolving issues

What’s Not Covered — and Why?

• Tax law arguments for specific tax issues: there are numerous tax issues that arise in an audit and taxpayers should apply a clear understanding of the law when advocating their return position in an audit.
• Alternative dispute resolution: depending on the circumstances, the taxpayer may request mediation or another informal IRS alternative means to resolve audit issues. Few taxpayers utilize these options and they are not covered in-depth in this text.

Most Common Taxpayer and Tax Professional Actions Performed When Addressing Underreporter Notices and Audit

• Responding to an IRS CP2000
• Responding to a mail audit
• Requesting reconsideration of a CP2000 or mail audit determination
• Contesting accuracy penalties
• Managing the office or field audit process
• Appealing disagreed issues with the IRS

When to Get an Expert Involved

• Office and field audits: face-to-face audits involving complex audit procedures by an IRS auditor
• Appealing disputes: filing a protest and negotiating an appeals settlement
• Potential criminal violations: taxpayers who have potential tax fraud claims against them should always consult an attorney

Professional Assistance Fees

• Hourly: Range from $80-$500 an hour for representation by an EA, CPA, or tax attorney. Office audit, field audit, and appeals representations are often charged at the higher rates and can involve extensive work, depending on the size and complexity of the issues involved.
• Flat fee: National firms can charge flat fees from $3,000 – $100,000 depending on the amount owed and complexity of the issues involved. CP2000 and mail audits are less expensive. Field audits and appeals representation can be expensive depending on the amount of work involved.
• No fee: CP2000 and mail audit responses are often services provided for free by the tax preparer of record. Low-income taxpayer clinics can assist taxpayers free of charge.

Closely Related Issues

• Penalties: taxpayers involved in CP2000s and audits can incur accuracy penalties. Taxpayers need to contest the penalty during the CP2000/audit/appeal if they have cause.
• Unfiled returns: IRS auditors in office and field exams will audit the taxpayer’s tax history to ensure that they have filed all required prior/subsequent and related returns.

Time to Complete Estimates for Common Audit Solutions/Actions

Audit Action	Estimated Hours to Complete	Average Duration Estimate
Obtaining tax history and transcripts from IRS	<1 hour (best to call IRS by phone)	1 day-3 weeks (if transcripts come by mail)
Responding to a CP2000 notice	2-3 hours	1-6 months (one response closing)
Responding to a mail audit	2-8 hours	1-8 months (one response closing) (average in 2023 was 192 days, excluding any IRS appeal)
Resolving an office audit – from preparation to final closing of the audit	6-25 hours (self-employed taxpayers require more financial analysis)	1-10 months (average in 2023 was 291 days, excluding any appeal)
Resolving a field audit – from preparation to final closing of the audit	15+ hours	1-26 months (average in 2023 was 450 days, excluding any appeal)
Appealing unagreed issues to the IRS Independent Office of Appeals (protest through settlement)	8+ hours, depending on the issues involved and whether issues were addressed throughout the audit	4-15 months
Requesting CP2000 reconsideration (request only)	2-3 hours	4-12 months (with one response to resolve the case)
Requesting audit reconsideration (mail audit request only)	5-10 hours	4-12 months (with one response to resolve the case)

UPDATES TO THIS CHAPTER

7/20/2025:  updated with latest IRM citations

OVERVIEW OF IRS AUDITS AND UNDERREPORTER NOTICES

This section provides a basic overview of the manner in which the IRS challenges tax returns for accuracy and helpful contact information and guidance for resolving audits and CP2000 issues.

Topic	Covers
Overview of IRS Tax Return Challenges	Type of IRS return challenges, including IRS CP2000 inquiries, audit rates, and suspected fraudulent refund holds.
Post-Filing Tax Return Challenges: CP2000 Notices and Audits	Includes: Assessment statutes and IRS exam cycle Automated Underreporter notices IRS examinations or “audits” Scope of IRS return challenges How returns are selected for audit IRS soft notice programs and 2019 crypto currency inquiries.
Basic Post-Filing Assessment Principles: Deficiency Procedures	Includes: Streamlined deficiency procedures with CP2000 notices and mail audits Deficiency procedures and IRS office and field audits Relief from repetitive IRS examinations
Relevant IRS Internal Revenue Manual (IRM) Guidance	IRS internal guidance that contains detailed IRS underreporter, audit, and appeals procedures.
IRS Forms and Publications	Common forms and publications that are useful for IRS underreporter notices, audits, and appeals.
Frequently Used IRS AUR and Examination Phone Numbers	Phone numbers to directly contact the IRS for underreporter notices, audits, and appeals.
Common IRS Notices and Taxpayer Notifications	IRS notices used in underreporter inquiries, all audits, crypto-currency notices, and appeals.
Useful Websites and IRS Online Tools	Websites to assist in gathering information and preparing for an audit.
Key Terms and Definitions	Terms used in underreporter notices, audits, and appeals.
IRS Audit and Appeal Process: IRS Roadmap Diagram	Process diagram to illustrate the audit and appeals process.

Other helpful sections:

Topic	Covers
Accuracy-Related Penalties	How to address accuracy penalties in an audit or underreporter notice.
IRS Transcripts	How to obtain IRS transcripts needed in preparing for an IRS audit and underreporter response.

Key Highlights:

• Inaccurate tax returns cost the U.S. Treasury billions a year in lost tax revenue. It is the largest area of taxpayer noncompliance.
• The IRS can challenge the accuracy of tax returns at the time of filing and after filing.
• The IRS has the authority to reject or change a tax return at the time of filing if the tax return has a processing error or other math error.
• The IRS uses matching notices and audits to challenge the accuracy of a tax return after the return is accepted.
• The IRS must follow deficiency procedures before assessing additional tax after filing. These procedures allow taxpayers several opportunities to prove the accuracy of the return and appeal disagreements before the tax is assessed and paid.

Overview of IRS Tax Return Challenges

The United States tax system relies on taxpayers filing correct tax returns. However, recent IRS statistics measuring the 2022 tax year estimates that $539 billion is lost annually due to taxpayers filing an inaccurate tax return—that is, taxpayer errors that understate income, or overstate deductions and credits. [IRS Publication 5869]

To combat underreporting and inaccurate tax return filings, the IRS can challenge the accuracy of returns during the filing process and through post-filing compliance activity. Filing challenges include e-file filters to reject inaccurate returns. For example, if a taxpayer claims a dependent that has already been claimed on another return, the IRS will reject the return when the taxpayer attempts to e-file. The IRS can also challenge a return during filing by correcting filing mistakes to the return through its math error authority. For example, if the taxpayer incorrectly computes tax on the return, the IRS will correct the error and send a notice to the taxpayer about the adjustment.

The IRS can also challenge a return by examining the accuracy of the return through matching programs (Automated Underreporter program or “AUR”) or by auditing the return. AUR and audits require that the IRS follow procedures before assessing additional tax. These procedures, called deficiency procedures, allow the taxpayer to contest the additional tax without payment. [IRC §6213(a)] Deficiency procedures are a core taxpayer right that allows taxpayers the preemptive ability to contest an IRS determination of additional tax owed without having to pay the tax first. E-file rejections and math error adjustments are not subject to deficiency procedures.

The IRS does not publish e-file rejection volume data. However, based on IRS data for 2020-2024, taxpayers are most likely to encounter a math error notice or an AUR notice when the IRS challenges the accuracy of a return after the return is submitted to the IRS. In 2021 and 2022, the spike in math error notices is largely due to stimulus payment (recovery rebate credit) corrections on a tax return. Post-2022, without additional stimulus or other issues, the math error notice volume returned to pre-2021 levels.

IRS Challenges to a Return During Filing

The IRS has two primary methods to challenge returns during the filing process:

1. E-file rejection: E-file rejection occurs when a taxpayer attempts to e-file a return and the IRS detects an error and rejects the return before it is accepted as a filed return. Common e-file rejections include filing with personal information that does not match information on file with the Social Security Administration (name, SSN, date of birth), a return has already been filed under that SSN (possible stolen identity refund fraud), a dependent was claimed on another person’s tax return (dependent dispute, identity theft, or a dependent filed their own return), or the taxpayer’s electronic signature is not accurate (taxpayer does not know their AGI, identity protection PIN if they had prior reported tax identity theft, etc.). [IRS Publication 1345]
2. Math error notices: The IRS has some limited authority to adjust returns and assess additional tax for a math error or a clerical error on a return. In these situations, the IRS accepts the filed return, but changes the return based on math or clerical errors made on the return. [IRM 21.5.4.3 (10-01-2024)] When the IRS adjusts the return, it sends the taxpayer a notice, usually Letter CP10, CP11, CP12, or CP13 Series. [IRM 21.3.1.6.5-9 (10-01-2024)] Taxpayers can request abatement of the adjustment within 60 days of the notice. If the IRS rejects the abatement request, it must audit the taxpayer. [IRC §6213(b)(2)(A) and IRM 21.5.4.4.2 (10-01-2024)] The IRS commonly uses math error authority to resolve paper filing math errors, taxpayer identification number errors and the resultant impact on deductions and credits, and tax computation errors, such as tax rates and the amount of social security income subject to taxation. [ National Taxpayer Advocate, 2023 Purple Book]

The most common math error issues in 2024 are as follows:

[IRS Data Book, 2024, Table 25, page 67]

IRS math error notices do not include a correction to withholding or estimated tax payments or a tax decrease or increase of credits resulting in a larger refund due to the taxpayer. [IRM 21.5.4.2.1 (4-18-2022)]

Practice Tip: Taxpayers receiving a math error notice can contact the IRS directly by phone to request abatement of the tax change. Taxpayers should be prepared to provide a valid reason for the abatement. When a taxpayer requests an abatement with or without substantiation within 60 days, the IRS must abate the assessment. If the IRS disagrees with the taxpayer’s reason, the IRS may still hold the refund and refer the taxpayer for audit. [IRM 21.5.4.4.5 (10-01-2024)] The taxpayer can also request that the IRS review her case in an audit and if the taxpayer disagrees, the taxpayer will have the opportunity to appeal the determination prior to the issuance of a notice of deficiency. If a notice of deficiency is issued, the taxpayer will have the opportunity to file a petition with the United States Tax Court. [IRM 21.5.4.3.2 (10-01-2024)] Taxpayers who miss the 60-day deadline can file an amended return to provide substantiation to overturn the math error assessment. The IRS may allow or disallow the amended return based on the facts and circumstances. [IRM 21.5.4.4.3 at (4) (10-01-2024)] If the IRS disagrees, the taxpayer can follow the claim for refund procedures to contest the IRS determination.

Suspected Fraudulent Refunds

The IRS can also hold refund returns if they suspect errors or tax identity theft. In the case of suspected errors, the IRS can question the validity of the return and question its accuracy (e.g., Notice CP05). In the case of suspected identity theft, the IRS will ask the taxpayer to verify her identity before releasing the refund (Notice CP05). [IRM 21.3.1.6.1 (10-2-2023); Reference our Tax Identity Theft section for help on tax identity theft issues]

Post-Filing Tax Return Challenges: CP2000 Notices and Audits

After a return is accepted, the IRS can challenge the accuracy of the return. In order to assess additional tax after the return is accepted, the IRS must follow procedures called for in IRC §6213 (deficiency procedures). Deficiency procedures apply to the most common post-filing return challenges: automated underreporter notices (CP2000 notices) and audits.

Assessment Statutes and the IRS Exam Cycle

Generally, return challenges and additional assessments must be completed within three years from the date the return was filed. [IRC §6501(a)] There are several conditions that extend the assessment statute expiration date (ASED). [IRM 25.6.1.5 at (4) (10-2-2023)] However, most IRS assessments occur well before the three-year ASED.

IRM 4.10.2.2.2 (9-9-2019) provides that the examination and disposition of income tax returns is to be completed within 26 months after the due date of the return or the date filed, whichever is later, for individual returns (27 months for business returns). The 26-month period (27 months for businesses) is referred to as the “IRS Exam Cycle.” [IRM 4.10.2.2.2 (9-9-2019)] To comply with this requirement, IRS auditors cannot initiate an examination on any return with less than 12 months remaining on the ASED without prior managerial approval. [IRM 4.10.2.2.1 (9-9-2019)] In practice, it is rare to encounter IRS auditors starting examinations on tax years with less than one year left on the ASED. Most deviations from this IRS policy are in field examinations. In these cases, the IRS auditor may ask the taxpayer to voluntarily extend the statute of limitations to assess additional tax (i.e., IRS Form 872).

Practice Tip: The IRS generally likes to select taxpayers for audit within several months after the taxpayer files a return. IRS auditors are instructed to close their examinations at least ten months before the ASED to allow the taxpayer the opportunity to appeal any determination and for the IRS to have time to properly close any examination before the ASED. It is not uncommon for the IRS to take a long time to examine more complex taxpayers and small businesses. If the IRS approaches the end of the exam cycle, the auditor will likely request the taxpayer to extend the ASED using Form 872. If the audit has unagreed issues about which the taxpayer wishes to appeal to the IRS Independent Office of Appeals, the IRS auditor will solicit a statute extension if there is less than 365 days remaining until the ASED. Taxpayers should consider all factors before agreeing to extend the ASED, including receiving an understanding from the IRS as to what specific steps and timeframes are needed to complete the audit.

Automated Underreporter Notices

Most IRS post-filing return challenges are received by correspondence (i.e., mail). The most common return challenge is the Automated Underreporter (AUR) matching notice – the CP2000 notice.

The AUR program matches the billions of information returns filed with the IRS (i.e., Forms 1099, W-2, 1098, etc.) to filed tax returns and looks for discrepancies. If IRS computers detect a discrepancy, the return is flagged and sent to a tax examiner for review. A tax examiner manually reviews the return and can generate a notice to the taxpayer (Notice CP2000) that shows the discrepancy and proposes additional tax owed. In practice, the IRS AUR issues three cycles of matching notices: [TIGTA Report 2021-30-002, December 30, 2020, , Billions in Potential Taxes Went Unaddressed from Unfiled Returns and Underreported Income by Taxpayers That Received Form 1099-K Income ]

• November/December: for returns filed on or before 4/15
• March/April: for returns filed before 10/15
• June/July (following year): for any miscellaneous issues and late filed returns

Note: In 2020-2023, the COVID-19 pandemic did not stop the IRS AUR CP2000 program. However, since the pandemic, the timing of the three cycles have been erratic due to ongoing IRS operations issues.

The annual number of CP2000 notices fluctuates based on IRS resources. However, over the past 20+ years, the IRS AUR has sent out millions of notices per year. [IRS Data Books, 1995-2024, Table 24]

CP2000s are not technically an IRS examination or audit. Why? Because CP2000 inquiries are narrow, limited contacts with the IRS, and CP2000s do not involve an IRS inspection of the taxpayer’s books of account. IRS matching information on a return with other records of information items that are already in the IRS’s possession does not constitute an audit. [Revenue Procedure 2005-32, §4.03(1)(b)] As such, the IRS does not require taxpayers to provide books and records to substantiate items on a tax return in a CP2000 notice. The CP2000 inquiry does not turn into an audit if the taxpayer voluntarily provides records. [Revenue Procedure 2005-32, §4.03(1)(c)]

Although CP2000s are not audits, the average CP2000 does lead to a significant tax bill for the taxpayer. [IRS Data Books, 1995-2024, Table 24]

According to the IRS, 94% of all CP2000s and related program underreporter notices resulted in a change to the amount of tax reported on the original return. [IRS FOIA Response 2025-000175, February 2025)] In 2024, the average amount owed increased to $7,074 on 1,126,664 CP2000s issued and 62,655 CP2501s issued.. [IRS FOIA Response 2025-000175, February 2025)]

The IRS can also assess an accuracy penalty (negligence or substantial understatement) in addition to the tax proposed. The IRS uses its business rules to determine whether to “automatically” assess an accuracy penalty. Taxpayers with prior CP2000s with the same type of unreported income will incur an automatic negligence penalty [IRM 4.19.3.18.6 (5-19-2017)] and taxpayers who meet the computational requirements will generally be assessed the substantial understatement penalty. [IRM 4.19.3.18.5 (9-21-2020)] Unlike in an audit, IRS managers do not have to approve the imposition of an accuracy penalty on a CP2000 notice. [IRM 20.1.5.3.2 at (3) (4-22-2019)] In 2024, the IRS assessed an accuracy penalty on 5.2% of all underreporter inquiries. [IRS FOIA Response 2025-000175, February 2025)]

Practice Tip: Accuracy penalties can be contested in a CP2000 notice by responding timely to the notice or requesting reconsideration if the tax and penalty have already been assessed. The IRS is required to review the facts and circumstances in the taxpayer’s protest and make a determination, subject to manager approval, to sustain the penalty. In practice, many taxpayers do not contest the accuracy penalty and allow the IRS to automatically assess it. In these cases, the taxpayer must request CP2000 reconsideration and provide the basis for relief from the penalty in the request for reconsideration. In practice, it is best to respond during the CP2000 process as reconsiderations can take 6-12 months, or more, to complete.

IRS Examinations or “Audits”

The IRS can examine the accuracy of a tax return by auditing the taxpayer. [IRC §7602(a)] IRS auditors are assigned to examine selected returns to determine if the taxpayer reported the correct tax liability.

There are three types of IRS audits:

1. Correspondence (mail) audits: mail audits done by tax examiners at central IRS campuses usually on individual taxpayers and most times related to refundable credit issues (i.e., earned income tax credit, etc.).
2. Office audits: also referred to as a “desk audit.” These audits are conducted at local IRS offices staffed by tax compliance officers.
3. Field audits: these are the most comprehensive IRS audits that are done by IRS revenue agents. Field audits take place at the taxpayer’s place of business or at his home. Field audits are rare and are used for the most complex individual, business, employer, and specialty taxpayers.

Most IRS audits are done by mail. In fact, in 2024, 77% of all audits were done by mail. IRS data shows the traditional predominance of mail audits over face-to-face examinations (office and field audits). [IRS Data Books, 2011-2018, Table 17b; 2019-2022, Table 18]

For the past several years, the total number of audits have diminished, largely due to reduced IRS personnel. For 2014-2022, the number of IRS income tax auditors has dropped significantly. However, new hiring in 2023-2024 increased the number of IRS auditors.[IRS Data Books, 2014-2024, Table 34] Despite these gains, the IRS again experienced a significant loss to its audit staff in 2025 due to IRS cutbacks [TIGTA Report 2025-IE-R017, May 2, 2025, Snapshot Report: IRS Workforce Reductions as of March 2025]

The number of total audits (all taxpayers) measured has steadily dropped since its height in 2010. [IRS Data Books, 2005-2024, Tables 17 and 18]

Individual taxpayers traditionally make up almost nine out of ten audits. [IRS Data Books, 2005-2024, Tables 17 and 18]

IRS audit rates have been declining since 2011. IRS resources currently limit the audit rate to 0.27% for all taxpayers and 0.28% for individual taxpayers. (Note: These are estimates of IRS audit rates. The IRS no longer publishes its audit rates as part of its annual “Data Book.”) In 2020-2024, IRS audit rates were down significantly due to IRS operational issues.

Scope of IRS Return Challenges

For the four major types of IRS post-filing return challenges, the field audit is the most comprehensive of all IRS examinations. IRS field auditors, called revenue agents, have the most authority in IRS audits. Generally, IRS underreporter inquiries and mail audits are issue-specific and warrant only a complete response from the taxpayer. Face-to-face audits – IRS office and field exams – are broader in scope and can include substantial reviews of the taxpayer’s finances to determine the accuracy of the return.

The following chart illustrates, in practice, what taxpayers can expect in the four types of return challenges.

Comparison Chart of Aspects of IRS Return Challenges, by Type

How Returns Are Selected for Audit

The IRS uses many different methods to select a taxpayer for audit. [GAO Study 16-103, IRS Return Selection, December 2015]

The seven most prominent methods are:

• Random selection and computer screening: return audit selection based solely on a statistical formula. The formula compares a filed tax return against norms for similar returns.
• Related examinations: the IRS can select to audit returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
• Referrals: IRS employees and units, as well as external sources, such as other agencies and other taxpayers, can refer potentially noncompliant taxpayers to the IRS. The IRS may start an audit if the referral indicates significant potential for noncompliance. Referrals can involve, among others, those promoting shelters created to avoid taxation, whistleblowers, and those not filing required tax returns.
• Data matching: when information on a tax return — such as wages, interest, and dividends — does not match information provided to the IRS by states, employers, or other third parties, these discrepancies may prompt the IRS to review returns for audit potential. An example is the data matching from merchant and payment processors (1099-K), which uses information from credit and debit card transactions to identify income that may be underreported.
• Project cases: the IRS often identifies returns with specific characteristics that generally involve a specific tax issue known or suspected to have high noncompliance in a geographic area, industry, or population.
• Taxpayer-initiated audits: taxpayers can contact the IRS to request an adjustment to their tax returns, tax refunds, or tax credits, or request to have a previous audit reconsidered. The IRS may initiate an audit after reviewing these requests.
• Random identification: the IRS’s National Research Program (NRP) studies tax compliance through audits of a randomly-identified sample of tax returns. The goal of the NRP audits is to identify noncompliance areas and to improve audit selection. NRP audits measure voluntary compliance in reporting income, deductions, and credits, among a variety of categories, and applies those measures to the population being studied to help identify returns with the highest probability of noncompliance.

The IRS is in the early stages of using Artificial Intelligence (AI) for audit selection. The IRS aims to replace the cumbersome NRP studies to update audit selection criteria and replace them with AI selection processes. [TIGTA Report 2025-308-022, May 19, 2025, The IRS Could Leverage Examination Results in Artificial Intelligence Examination Case Selection Models and Improve Processes to Evaluate Performance]

Mail audits are generally used by the IRS to combat questionable refunds and specific issues. IRS tax examiners are not involved in the ultimate selection of the return for audit. Most returns selected for audit are computer generated by Correspondence Exam units at IRS campuses.

However, with regard to office and field audits, the IRS auditor (tax compliance officer or revenue agent) has some discretion on return selection. IRS exam group managers ultimately have the discretion to assign the case for actual examination by the IRS auditor.

Historically, individual taxpayer audit selection provides much higher than normal audit rates for taxpayers who have the earned income tax credit, a small business, or earn more than $1 million in income (high income taxpayers). [IRS Data Books, 2010-2019, Table 17] Note: Starting in 2020, the IRS no longer publishes specific audit rates by taxpayer type. However, in 2020-2024, IRS audit rates were very low due to IRS operational issues.

The number of IRS audits of individual taxpayers has dropped considerably over the past nine years. Earned Income Tax credit audits have historically made up one of the largest audit areas. In 2024, EITC audits make up 38% of all individual audits [IRS Data Book 2024, Table 18].

Small business audits historically have been high. In 2019, small business audits were 19% of all IRS individual audits. Note: Starting in 2020, the IRS no longer publishes specific audit rates by taxpayer type. However, in 2020-2022, IRS audit rates were very low due to pandemic-related operational issues.

IRS Soft Notice Programs

IRS resources limit the number of return challenges it can make on questionable returns or returns with matching discrepancies. The IRS has several “soft-notice” programs that communicate potential non-compliance. Most of these notices are not from IRS compliance enforcement units (i.e., audit, AUR), but rather they originate from IRS accounts management (i.e., the function that processes and accepts a filed tax return). The notice only requests that the taxpayer review their returns for accuracy and voluntarily file an amended return if there is an error.

Notice CP2057, You may need to file an Amended Return, is a common example of an IRS soft notice. This notice informs the taxpayer that there may be a discrepancy between the information returns filed by employers and payers (banks, etc.) with the filed return. The notice asks the taxpayer to consider filing an amended return. The IRS does not follow up with the taxpayer and initiate an AUR inquiry (CP2000 or 2501 notice) if the taxpayer does not respond. [IRM 21.3.1.6.41 (5-14-2024)]

Letters CP85 and CP87 are also examples of IRS soft notices that request the taxpayer to correct a potential earned income tax credit error by filing an amended return. [IRM 21.3.1.6.37 (10-3-2022)]

In 2019, the IRS started a notice program aimed at underreporting and non-filing of crypto-currency transactions. [IRS News Release IR-2019-132, July 26, 2019] Over 10,000 taxpayers received one of three letters requesting the taxpayer to review their 2013-2017 tax returns for proper reporting and filing of virtual currency transactions. The IRS has previously acquired virtual currency transaction data from a summons of Coinbase — a virtual currency exchange. [U.S. v. Coinbase, Inc., 2017-2 USTC ¶50,423 (U.S. DC Ca., Nov. 28, 2017)] It is believed that the letters were aimed at taxpayers who were identified in the summonsed information.

Two of the three letters (Letters 6174 and 6174-A) were soft notice programs asking the taxpayer to consider filing an amended return. [IRM 21.3.1.8.5.1 (7-19-2023)] No response was required for these letters. Taxpayers receiving Letter 6174-A were warned that the IRS may follow-up on their case, at the IRS’s discretion, at a later date.

However, the third letter, Letter 6173, was not a soft notice. Taxpayers who received Letter 6173 were required to provide a response to the IRS. [IRM 21.3.1.8.5 (7-19-2023)] Taxpayers were instructed to take one or more of the following actions by the response date, depending on their circumstances:

• File a delinquent return(s) reporting their virtual currency transactions
• Amend a prior return to correct reporting and underreporting of virtual currency transactions
• If the reporting was correct, provide a statement, under penalties of perjury, that their returns were complete and correct as filed. The statement would need to explain the taxpayer’s position, including a complete history of previously reported virtual currency transactions and provide copies of previously filed documents that confirm the taxpayer’s compliance.

These initial letters are believed to be the first wave of IRS compliance activity directed at the misreporting of virtual currency transactions. The IRS has plans to use many soft notices to close the tax gap. [IRS Inflation Reduction Act Strategic Operating Plan]

Basic IRS Post-Filing Assessment Principles: Deficiency Procedures

When a taxpayer and the IRS disagree on the findings of an audit, the taxpayer has right to appeal the IRS determination before the deficiency is assessed and paid. These pre-payment rights are provided to the taxpayer in IRC §6213 and are known as “deficiency procedures.”

A CP2000 AUR inquiry or an audit can be concluded in one of four ways:

• No-change: an audit in which the taxpayer has substantiated all the items being reviewed and results in no changes to the filed return.
• No-change, with adjustments: adjustments were made to the return, but no additional tax is due.
• Agreed: an audit where the IRS proposed changes and the taxpayer agrees with the changes and additional tax due.
• Unagreed: an audit where the IRS has proposed changes and the taxpayer does not agree with the changes.

Taxpayers who disagree with their CP2000 or audit determination will follow deficiency procedures to contest the determination. Deficiency procedures require the IRS to propose additional tax and penalties and allow the taxpayer to contest the determination prior to the tax being assessed and paid.

For AUR program and audits, the normal IRS deficiency procedures produce at least four taxpayer notifications:

1. Notice of AUR inquiry or audit: a notification to the taxpayer that the IRS is challenging the accuracy of a tax return. The year and form will be noted on the letter. The IRS may outline the issues in question in the letter.
2. Notice of Proposed Adjustment: a proposal of the changes made to a return and the tax and penalties as a result of the change. The taxpayer is given details on the IRS adjustments to the return and given an opportunity to contest the changes during the time period noted on the letter.
3. 30-day letter: a letter that identifies the proposed adjustments and gives the taxpayer the right to request an independent hearing in the IRS Independent Office of Appeals.
4. 90-day letter (“Statutory Notice of Deficiency”): before assessing the additional tax, penalties, and interest, the taxpayer is given a final opportunity to contest the IRS’s determination in the U.S. Tax Court.

The 30-day letter begins the timeframe for the taxpayer to contest her CP2000 or audit determination with the IRS Independent Office of Appeals (30 days from the date of the letter).

The Letter CP 3219, Statutory Notice of Deficiency (SNOD, or 90-day letter), provides the last day (90 days from the date of the letter) for the taxpayer to petition her case to the U.S. Tax Court. The SNOD is a legal determination that is presumptively correct and consists of a letter explaining the purpose of the notice, the amount of the deficiency, and the taxpayer’s options. The 90-day letter includes:

• A waiver to allow the taxpayer to agree to the additional tax liability (usually Form 870 (audit) or 5564 (AUR))
• A statement showing how the deficiency was computed (Forms 4549 and 886-A (audit) or partial reprint of the CP2000 notice (AUR))
• An explanation of the adjustments (Form 886-A (audit) or partial reprint of the CP2000 notice (AUR))
• Information on taxpayer’s rights to appeal (Publication 5)

[IRM 4.8.9.2 (8-11-2016) and IRM 4.19.3.22.11 (10-02-2024)]

At the end of the 90-day letter, if the taxpayer does not contest the determination or waives her rights to contest, the IRS can assess the additional tax, penalties, and interest.

After the expiration of the 90-day period, the taxpayer can contest the assessment by either requesting reconsideration (if she did not participate or was not given the opportunity to present her facts or appeal in the CP2000 or audit) or following the claim for refund procedures. The claim for refund procedures requires the taxpayer to pay the balance and file a claim for refund. [IRC §7422(a)] If the IRS denies the claim or the IRS does not act within six months from the date of filing of the claim, the taxpayer can file suit to recover the balance paid. [IRC §6532(a)(1)]

Practice Tip: The claim for refund procedures is usually not a practical remedy for most taxpayers to contest an IRS determination. Most taxpayers will want to go to the IRS Independent Office of Appeals to contest the IRS determination. If the tax and penalties have already been assessed to the taxpayer, the taxpayer can request informal reconsideration from the IRS if the taxpayer has new information not reviewed by the IRS. Reconsideration is commonly allowed in CP2000 and mail audit assessments. It is common for these taxpayers to have premature IRS assessments that do not consider their response. The IRS often cannot review the response before the 90-day letter is issued or the taxpayer did not respond in time before the 90-day letter was automatically issued.

Streamlined Deficiency Procedures for CP2000 Notices and Mail Audits

Deficiency procedures can be confusing in CP2000 and mail audit notices. In the AUR and correspondence audit programs, the CP2000 notice and the initial mail audit notice can serve multiple purposes. The initial notices in these programs can serve as a “combination” notice for taxpayers who do not timely respond to the initial notice. For example, the CP2000 serves as a “combination” notice of the start of a deficiency proceeding, a notice of proposed tax, and a 30-day letter. [IRM 4.19.2.2 (03-13-2024) at (7)] Taxpayers who do not respond to the original CP2000 are generally not given a separate 30-day letter that affords them the right to go to IRS Appeals. Unresponsive CP2000 taxpayers are automatically issued the 90-day Statutory Notice of Deficiency letter. In these cases, the IRS directs taxpayers to petition U.S. Tax Court to contest the liability. Taxpayers in these situations are confused on their options. Do they petition the Tax Court or try to have the IRS consider their response? A more practical alternative may be to request CP2000 reconsideration. In practice, the IRS frequently allows for CP2000 reconsideration for non or late responders which alleviates the taxpayer from having to petition the Tax Court on a defaulted CP2000 assessment.

Practice Tip: It is not uncommon for the IRS to prematurely assess deficiencies on AUR and mail audit cases. This routinely allows AUR and mail audit reconsiderations (i.e., reopening of the CP2000 and mail audit) to allow the taxpayer to respond and correct the tax determination. Most taxpayers follow the reconsideration process rather than petition the Tax Court on a premature assessment. However, if the IRS has reviewed the taxpayer’s responses and has made an adverse determination, taxpayers should consider timely petitioning the Tax Court to contest the determination.

Deficiency Procedures and IRS Office and Field Audits

IRS deficiency procedures are more transparent in IRS face-to-face examinations (office and field audits).

Unlike AUR inquiries and mail audits, face-to-face examinations usually are conducted by one IRS auditor throughout the process. The taxpayer is provided a formal notice of examination by the IRS auditor assigned and given the opportunity to provide the auditor information to prove the accuracy of the return.

In these examinations, the auditor (likely a revenue agent or tax compliance officer) will discuss the proposed return adjustments with the taxpayer prior to issuing a report. The taxpayer is given an opportunity to respond with additional evidence or argument. The taxpayer also can easily access the auditor’s Group Manager if there are any disputes in the audit. This back-and-forth communication and information exchange can resolve most issues in the examination. If the taxpayer and the IRS cannot agree, the auditor will provide a formal 30-day letter that allows the taxpayer to have his dispute heard by the IRS Independent Office of Appeals. If the taxpayer does not request an appeal or cannot reach agreement in IRS Appeals, the taxpayer is provided a Statutory Notice of Deficiency which provides him 90 days to petition the determination to the US Tax Court.

Practice Tip: It is a best practice in face-to-face audits to obtain the IRS auditor’s Group Manager’s name and contact information should any disputes arise in the examination that warrant manager involvement. [IRM 1.4.40.3.7.1 (5-19-2010)] Examination group managers are required to intervene on all unagreed face-to-face examination cases to resolve the issues, obtain agreement, and limit taxpayer burden. [IRM 4.10.7.5.5 (9-12-2022)]

Relief from Repetitive IRS Examinations

Taxpayers may be selected for IRS examination for multiple years in a row. The IRS has an administrative policy to provide relief from repetitive IRS audits to compliant taxpayers who have demonstrated compliance in past examinations. [IRM 4.10.2.13 (2-11-2016)]

A repetitive audit is an audit that occurred in one or both of the preceding two years, does not contain a Schedule C (business income) or Schedule F (farming income), and resulted in a no change or small tax change on the same issues selected for the current year under examination. The taxpayer will be provided relief if the issues examined in either of the two preceding tax years are the same as the issues selected for examination in the current year. [IRM 4.10.2.13 at (1b) (2-11-2016)]

Taxpayers who obtain repetitive audit relief before the examination starts receive a Letter 2685, Repetitive Exam Letter, closing their audit. [IRM 4.10.2.13.2 at (2b) (2-11-2016)]

Practice Tip: The IRS uses a “facts and circumstances” test in applying repetitive audit relief. Taxpayers who believe they qualify for repetitive audit relief should quickly request this relief after audit notification. If the IRS starts the examination and has begun to review the taxpayer’s books and records, the IRS auditor must issue a “no-change” examination letter if they determine repetitive audit relief applies. In practice, IRS auditors are resistant to allowing repetitive audit relief after they have started to review the taxpayer’s records.

Relevant IRS Internal Revenue Manual (IRM) Guidance

Part 4 of the IRM contains most of the IRS examination and underreporter procedures. These sections are most often used to understand IRS examination and underreporter processes.

IRM Section	Topic
Part 4	IRS Examination Process
Part 8	The Appeals Process
4.19.2 and 4.19.3	Individual (IMF) Automated Underreporter Program
4.19.3.8	CP2000 Analysis by each type of omitted income
4.10	Examination of Returns
4.13	Audit Reconsiderations
4.19.15	Liability Determination – discretionary programs (Includes acceptable documentation for audit areas)
20.1.5	Return related penalties

IRS Forms and Publications

The following table lists frequent publications used in IRS underreporter notices and audits.

Publication	Title
1	Your Rights as a Taxpayer
5	Your Appeal Rights and How to Prepare a Protest If you Don’t Agree
556	Examination of Returns, Appeal Rights, and Claims for Refund
1035	Extending the Tax Assessment Period
3498	The Examination Process
3498-A	The Examination Process (Audits by Mail)
3524	EITC Eligibility Checklist
3598	Audit Reconsideration
4167	Appeals: Introduction to Alternative Dispute Resolution
4227	Appeals Welcome Brochure
5022	Fast Track Settlement
5146	Employment Tax Returns: Examinations and Appeal Rights
5181	Tax Return Reviews by Mail

The following table lists frequent forms used in IRS underreporter notices and audits.

Form	Title
656-L	Offer in Compromise (Doubt as to Liability)
866	Agreement as to Final Determination of Tax Liability
870	Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment
870-AD	Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment
872	Consent to Extend the Time to Assess Tax
886-A	Explanations of Items (accompanies a Form 4549, Income Tax Examination Changes)
4549	Income Tax Examination Changes
4549-A	Unagreed Report – Income Tax Examination Changes
4549-E	Income Tax Discrepancy Adjustments
886-H-AOC	Supporting Documents to Prove American Opportunity Credit
886-H-AOTC-MAX	American Opportunity Tax Credit Available for a Maximum of 4 Years
886-H-DEP	Supporting Documents for Dependency Exemptions
886-H-EIC	Documents You Need to Send to Claim the Earned Income Credit on the Basis of a Qualifying Child or Children for Tax Year 2019
886-H-HOH	Supporting Documents To Prove Head of Household Filing Status
886-H-ITIN	Dependent – Related Tax Benefits and Credits – Explanation of Items
906	Closing Agreement on Final Determination Covering Specific Matters
4564	Information Document Request (IDR)
4822	Statement of Annual Estimated Personal and Family Expenses
5564	Notice of Deficiency – Waiver (AUR program)
5701	Notice of Proposed Adjustments (used in more complex Field Audits)
11652	Questionnaires – Form 1040 Schedule C
12203	Request for Appeals Review (Small Case Request – entire amount of additional tax and penalty proposed for each tax period is $25,000 or less)
12661	Disputed Issue Verification
14086	Qualifying Children Residency Statement Third Party Affidavit
14420	Verification of Reported Income
14800	Child Tax Credit and Additional Child Tax Credit
14801	Child and Dependent Care Credit – Explanation of Items
14803	Duplicate Education Credit & Tuition Deduction
14804	Schedule A – Gifts to Charity
14805	Casualty and Theft Loss
14806	Adoption Credit Documentation Requirements
14808	Schedule A – Medical and Dental Expenses
14809	Interest you Paid
14810	Schedule A – Taxes You Paid
14815	Supporting Documents to Prove the Child Tax Credit (CTC) and Credit for Other Dependents (ODC) for 2018-2025
14817	Reply Cover Sheet (for correspondence exam, used for online response submission)
14824	Supporting Documents to Prove Filing Status
14950	Premium Tax Credit Verification
14978	Moving Expenses Deduction Supporting Documents

Frequently Used IRS AUR and Examination Phone Numbers

The following table contains the IRS phone contact information frequently used for CP2000 notices and audits.

IRS Hotline	Phone Number	Hours/Availability (note: times subject to change)
Automated Underreporter Unit (AUR)	(800) 829-8310 (SB/SE)(800) 829-3009 (W&I)	M-F, 7AM-8PM, local time [IRM 4.19.19.5.2 (3-18-2020)]
Business Underreporter Unit	(877) 571-4712	M-F, 10AM-4PM, central time [IRM 21.3.1.7.47 (10-3-2022)]
Correspondence Examination (SB/SE: Schedule C, E, F, or Form 2106)	866-897-0161	M-F, 7AM-7PM, local time [IRM 4.19.19.5.2 (3-18-2020)]
Correspondence Examination (W&I)	866-897-0177	M-F, 8AM-8PM, local time [IRM 4.19.19.5.2 (3-18-2020)]
Individual accounts	(800) 829-1040	For taxpayers, tax pros use PPS M-F, 7AM-7PM, local time
Business and Specialty accounts	(800) 829-4933	For taxpayers, tax pros use PPS M-F, 7AM-7PM, local time
International Account Inquiries	(267) 466-4777	M-F, 6AM-11PM, ET [IRM 21.3.8.1 at (1) (10-01-2021)]
Taxpayer Advocate National Hotline (central intake)	(877) 777-4778	M-F, 7AM-7PM, local time Local offices: 8AM-4:30PM
Practitioner Priority Service(tax professionals only)	(866) 860-4259 Option #2: Individual accounts Option #3: Business accounts Option #5: Automated Underreporter Unit Option #6: Correspondence Exam Unit	M-F, 7AM-7PM, local time [Practitioner Priority Service]
IRS Appeals Account Resolution	(559) 233-1267	Leave message, IRS responds in 24-48 hours [IRM 8.1.9.3 at (1a) (02-26-2025)]

Common IRS Notices and Taxpayer Notifications

Common Notices for Underreporter Inquiries

Notice #	Title	Used for:
CP2000	Request for Verification of Unreported Income, Payments, or Credits	Notifies taxpayer of a proposed change to tax liability because of income that is not identifiable or apparently not fully reported on the return and/or credits and deductions that appear overstated.
CP2501	Initial Contact to Resolve Discrepancy Between Income, Credits, and/or Deductions Claimed on Return and Those Reported by Payer	Pre-CP 2000 Contact Letter. In certain situations, an initial notice sent to the taxpayer requesting an explanation to resolve a discrepancy between items reported by the taxpayer on the tax return and the information provided by third parties regarding those items. If the taxpayer fails to respond or if the response is insufficient, the Service sends a CP 2000 notice proposing an adjustment. [IRM Exhibit 1.4.19-1]
4314C	Interim Response	When a quality response cannot be issued timely, an automatic, interim response is sent on the 30th calendar day from the IRS received date. [IRM 4.19.2.3.1 at (1b) (09-12-2024)]
CP2005	AUR No-change letter	AUR Inquiry is closed with no change to the tax liability and/or refundable credits.
CP2006	We received your response	The IRS needs additional time to resolve the CP2000 or the case has been transferred to another IRS office (IRS Examination) and should receive a response from that office within 60 days. [IRM Exhibit 1.4.19-3]
CP3219A	Statutory Notice of Deficiency	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of appeal rights to the U.S. Tax Court.
CP21E/CP22E	Assessment from a CP2000	Balance due from the AUR adjustment. [IRM 3.14.1.6.18.1.1 (1-1-2015)]
CP2057	Soft Notices Income Discrepancy	Informs the taxpayer there appears to be a discrepancy with income reported by a third party to the IRS. The notice provides information, such as the name of the third party and the address. Requests that the taxpayer review their records and if the income reported on their return is correct or not. The taxpayer is instructed to file an amended return if the original return was not correct. [IRM 21.3.1.6.41 (6-14-2024)]
2030	Business Underreporter Notice	Business underreporter matching notice showing underreported income information and proposing additional tax and penalties. (Similar to the individual letter CP2000)
2531	Business Underreporter Notice, initial notice to explain discrepancies	Pre-Letter 2030 business underreporter matching letter. Requests taxpayer to resolve discrepancies related to business (EIN) underreporting. (Similar to individual letter CP2501)
5035	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS soft notice questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. This notice does not require a response to the IRS. The taxpayer may need to voluntarily file an amended return based on its own investigation of income.
5036	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS notice questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. Requires a response in 30 days that provides information that shows that the 1099-K is not accurate, an amended return to report the income, and/or an explanation that the return and 1099-K are correct with an explanation as to why the business gross receipts from card payments are higher than expected (card payments as compared to cash payments received).
5039	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS notice questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. Requires a response in 30 days and for the taxpayer to complete Form 14420, Verification of Reported Income. The IRS reserves the right to take further action, such as an audit or issuing an underreporter notice.
5043	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS notice questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. Requires a response in 30 days that provides: information that shows that the 1099-K is not accurate or an amended return to report the income. The IRS may contact the taxpayer for further enforcement (underreporter notice or audit).

Common Notices for Mail Audits

Notice #	Title	Used for:
CP75	Exam Initial Contact Letter – EITC – Refund Frozen	EITC audits in which the IRS has frozen the taxpayer’s refund until the taxpayer can prove he/she is entitled to the EITC. [IRM 4.19.14.4 (1-01-2025)]
CP75A	Exam Initial Contact Letter – EITC – No Refund Frozen	EITC audits in which the IRS has not frozen the taxpayer’s refund. [IRM 4.19.14.4 (1-01-2025)]
CP06	Exam Initial Contact Letter – PTC – Refund Frozen	Premium tax credit discrepancy audits in which the IRS has frozen the taxpayer’s refund until the taxpayer can prove the correctness of the PTC. [IRM 21.3.1.6.2 (10-01-2024)]
CP06A	Exam Initial Contact Letter – PTC – No Refund Frozen	Premium tax credit discrepancy audits where the IRS has not frozen the refund. [IRM 21.3.1.6.2 (10-01-2024)]
566-B	Service Center Initial Contact Letter/30 Day Combo Letter (Examination by mail)	IRS audit notification letter with identified issues under audit, not including EITC. The letter also has proposed changes to the return shown on Forms 4549 and 886-A. Also serves as a 30-day letter if taxpayer does not respond. [IRM 4.19.15.25.4 (2-1-2022)]
566-S	Initial Contact Letter (Examination by mail)	IRS audit notification letter with identified issues under audit and request for information, including EITC. The letter can also propose changes to the return shown on Forms 4549 and 886-A. [IRM 4.19.15.25.4 (2-1-2022)]
2194	Alternative Minimum Tax Proposal Letter	Processed tax returns identified as taxpayers who are liable for the AMT but have not completed or attached Form 6251, Alternative Minimum Tax – Individuals. Taxpayers will initially receive Letter 12C and Letter 2194 will be issued if the taxpayer does not respond in order to assess the AMT. Form 4549 is included; this Form proposes the AMT. [IRM 4.19.15.8.1 (2-1-2022)]
915	Letter to Transmit Examination Report	Report transmittal letter for both agreed and unagreed issues if there are 240 or more days remaining on the statute of limitations.[IRM 4.10.8.4.1.1 (3-25-2021)]
525	General 30-day Letter	Includes Examination Report (Form 4549 with Form 886-A) and provides right to appeal within 30 days to IRS Independent Office of Appeals. [IRM 4.19.13.13 (09-16-2024)]
692	Request for Consideration of Additional Findings	Taxpayer replies to a 30-day letter where an audit report was issued, and additional information is needed. [IRM 4.19.13.11 at (4) (09-16-2024)]
3219	Statutory Notice of Deficiency	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of appeal rights to the U.S. Tax Court.[IRM 4.19.13.13 (9-16-2024)]
555	Notification of Findings Based on Taxpayer’s Recent Data Re: Tax Liability	Taxpayer replies after the 90-day letter is issued. [IRM 4.19.13.11.2 (09-16-2024)]
2685/1024	Repetitive Audit Letter	Audit stopped due to repetitive audit. [IRM 4.10.2.13.2 at (2) (2-11-2016) and IRM 4.10.2.13.2 at (3a) (2-11-2016)]
1024	Return Accepted as Filed	IRS closed audit (surveyed) after contacting the taxpayer but before the records were reviewed (i.e., audit did not take place). [IRM 4.10.2.5.1 (9-9-2019)]
590	No Change Final Letter	Final closing letter for no change cases with no adjustments. [IRM 4.10.8.3.1 at (4) (4-10-2023)]
987	Agreed Income Tax Change	Letter that Informs taxpayer that the IRS has accepted, after review, his/her agreed changes to the return(s). [IRM 4.10.8.2.3.1 at (4) (4-10-2023)]
1156	Change/No Change Final Letter	Final closing letter for no change with adjustment cases. [IRM 4.10.8.3.2 (4-10-2023)]
5153 Series	Examination Report Transmittal – Statute < 240 Days	Letter used to transmit a proposed agreed report and notify the taxpayer that additional time is needed on the statute for Appeals to consider the case if it is unagreed.[IRM 4.10.8.12.1 at (4) (4-10-2023)]
3500/3501	Interim Letter to Correspondence from Taxpayer/Second Interim Letter	Issued by IRS when additional time is needed (usually 30-45 days) to review a taxpayer’s response. [IRM 4.19.13.12.1 (4-6-2022)]
21/22E	Changes to Your Return from an Audit	Balance due from the audit adjustment. [IRM 3.14.1.6.18.1.1 (1-1-2015)]

Common Notices for Office/Field Audits

Notice #	Title	Used for:
2202	Initial Contact Letter – Firm Set Appointment Letter	Office Exams: Initial contact letter used to schedule a firm initial appointment date and time for individual taxpayers. [IRM 4.10.2.8.1.1 (11-4-2016)]
2205	Initial Contact Letter	Field Exams: Initial contact letter, does not list the issues being examined. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.2 (9-9-2019)]
2205-A	Initial Contact Letter	Field Exams: Initial contact letter, lists the issues being examined. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.2 (9-9-2019)]
3572	SB/SE Office Exam Call-Back Appointment Letter	Office Exam: sent to request individual taxpayers call to schedule an initial appointment. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.1 (11-4-2016)]
3253	Taxpayer Appointment Confirmation Letter (Letter 3254 is used to send to taxpayer’s representative)	After the initial telephone conversation, revenue agents must issue one of the following letters to confirm the initial appointment. [IRM 4.10.2.8.1.2 (9-9-2019)]
1912	Follow-Up Letter Transmitting Examination Reports	Office Exams: taxpayer does not respond within 15 days of Letter 915. [IRM 4.10.8.2.3.1 (4-10-2023)]
525	General 30-Day Letter	Letter from IRS auditor proposing adjustments to the return. Includes the audit report (Form 4549), explanation of adjustments, and tax computation. The taxpayer must request an appeal within 30 days if the taxpayer disagrees and wants to appeal within the IRS.
915	Examination Report Transmittal	Office Exams: used to issue both agreed and unagreed reports. [IRM 4.10.8.4.1.1 (3-25-2021)]
950	30-Day Letter	Field Exam: 30-day letter transmitting audit results where there was a change to the return. This notice allows the taxpayer the right to appeal. [IRM 4.10.8.12.1 (4-10-2023)]
531	Statutory Notice of Deficiency (90-day letter)	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of appeal rights to the U.S. Tax Court. [IRM 4.8.9.9.3 (7-9-2013)]
4121	Agreed Examination Report Transmittal	Letter to a taxpayer with audit report when they have indicated agreement to all adjustments. [IRM 4.10.8.4.1.1 at (1) (3-25-2021)]
590	No Change Final Letter	Final closing letter for no change cases with no adjustments. [IRM 4.10.8.3.5 (4-10-2023)]
987	Agreed Income Tax Change	Final closing letter on an audit with an agreed tax change. [IRM 4.10.8.2.3.1 (4-10-2023)]
1156	Change/No Change Final Letter	Final closing letter for no change with adjustment cases. [IRM 4.10.8.3.2 (4-10-2023)]
21/22E	Adjustment Made to Account	Balance due from audit adjustment. [IRM 3.14.1.6.18.1.2 (1-1-2015)]
3900	Closing Agreement Cover Letter	Appeals: Letter that accompanies a Closing Agreement settlement between the taxpayer and the IRS (Form 906). [IRM 8.20.7.13.2 (9-28-2018)]
5968	Prior or Subsequent Year Pickup	Letter to notify the taxpayer that the scope of the examination is expanded to include another tax period(s). [IRM 4.10.2.7.1.2 at (4) (09-29-2022)]

Crypto-Currency Notices

Notice #	Title	Used for:
6173	Initial Contact Letter: Reporting Virtual Currency Transactions (response required)	Targeted soft notice to crypto-currency holder requesting the taxpayer to file, review, and/or amend the return. A response is required from the taxpayer before the response date on the letter. [IRM 21.3.1.8.5 (7-19-2023)]
6174	Initial Contact Letter: Reporting Virtual Currency (no response required)	Targeted soft notice to crypto-currency holder requesting the taxpayer to review and/or amend the return. No response is required and the IRS does not plan to follow up on the notice and/or response. [IRM 21.3.1.8.5.1 (7-19-2023)]
6174-A	Initial Contact Letter: Reporting Virtual Currency Transactions (no response required but IRS may follow up)	Targeted soft notice to crypto-currency holder requesting the taxpayer to review and/or amend the return. No response is required, but the IRS may contact the taxpayer in the future about compliance. [IRM 21.3.1.8.5.1 (7-19-2023)]

Useful Websites and IRS Online Tools

The following table lists websites that help with underreporter notices and audits.

Website	URL	Description
IRS Audit Technique Guides (ATGs)	https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs	ATGs help IRS examiners during audits by providing insight into issues and accounting methods unique to specific industries. ATGs explain industry-specific examination techniques and include common, as well as, unique industry issues, business practices and terminology. Guidance is also provided on the examination of income, interview techniques and evaluation of evidence.
Bizstats business statistics and financial ratios (IRS auditors use this site for financial ratios)	Bizstats.com	Used to identify normal business profit and expense ratios in preparing for an audit. Offers free business statistics and financial ratios, by type of entity (sole proprietor, corporation, partnership), by industry (retail, beverage store, construction, etc.) and by amount of gross receipts.
Prior website pages	Archive.org	Using the “Wayback Machine,” the IRS auditor can review the taxpayer’s historical website pages for the years under audit for any potential issues.
Bureau of Labor Statistics Data	http://www.bls.gov	Used to estimate household expenses when determining if the taxpayer has enough income in the year.
IRS Get Transcript service (Get your tax record)	https://www.irs.gov/individuals/get-transcript	Obtain IRS transcripts for each tax year/form.
IRS e-Services Transcript Delivery System (tax pros)	https://www.irs.gov/tax-professionals/transcript-delivery-system-tds	Tax pro electronic account with features to access authorized taxpayer transcripts.
Mail audit issue templates	https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/letter-or-audit-for-eitc	Templates used for common mail audit issues such as the earned income tax credit, dependents, premium tax credit, and others.
IRS Correspondence Examination response site	Document Upload Tool | Internal Revenue Service | Authorized Use Warning	IRS site to upload mail audit response. Include Form 14817, Reply Cover Sheet, as the first page of the submission when sent by IRS.
IRS Secure Messaging	https://www.irs.gov/help/welcome-to-secure-messaging	IRS portal that allows responses to CP2000/CP2501. Letter 566/525 or 3540/3542, or Letter 12C.

Key Terms and Definitions

The following are common terms and their definitions for audits and underreporter notices, including appeals.

Term	Definition
Accuracy penalty	A penalty (usually 20% of the additional tax owed) for filing an inaccurate tax return. Negligence and substantial understatement are the two most common accuracy penalties issued.
Appeals Officer (AO)	IRS employee in the IRS Independent Office of Appeals that helps the taxpayer resolve a tax dispute through an informal process. Most audited taxpayers access the IRS Independent Office of Appeals by timely requesting an appeal after receipt of a 30-day letter.
Assessment statute of limitations	The time period the IRS has to assess additional tax. In most cases, the assessment statute is three years from the due date of the return, or the date filed, whichever is later. [IRC §6501]
Assessment Statute Expiration Date (ASED)	The last day the IRS has to assess additional tax for a tax form/period. [IRC §6501]
Audit (IRS Examination)	An IRS audit is a review/examination of a taxpayer’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify that the reported amount of tax is correct.
Audit Reconsideration	The process the IRS uses to reevaluate the results of a prior audit where additional tax was assessed and remains unpaid, or a tax credit was reversed, in which the taxpayer disagrees with the original determination and has new information for the audited issue(s) that was not previously considered during the original examination.
Automated Underreporter (AUR)	The Automated Underreporter Program matches taxpayer income and deductions submitted on information returns by third parties (employers, banks, brokerage firms, etc.) against amounts reported by taxpayers on their individual income tax returns to identify discrepancies. The Automated Underreporter Program routinely identifies individual tax returns with discrepancies each year and, when warranted, assesses additional taxes as well as interest and penalties.
Correspondence Exam	An audit by mail. Most mail audits consist of an IRS notice asking for clarification of a tax return item(s) (usually earned income tax credit, additional child tax credit, or a deduction/credit that appears to be incorrect). These audits are conducted at IRS campuses by tax examiners.
CP2000 Reconsideration	The process of re-determining the correct tax based on additional information available or not considered in the initial CP2000 deficiency process.
Deficiency procedures	The legal process that requires the IRS to notify the taxpayer of the changes made to the return and to provide the taxpayer the opportunity to contest the determination without payment of the deficiency. IRS procedures require the taxpayer to receive a 30-day letter (opportunity to go to IRS Appeals) and a 90-day letter (opportunity to contest in U.S. Tax Court) prior to assessing the deficiency. [IRC §§6212 and 6213]
Field Exam	The most comprehensive of all IRS audits of individuals, partnerships, corporations, and specialty taxpayers that occur either at the taxpayer’s place of business or through interviews at an IRS office. These audits are conducted by IRS revenue agents.
Group Manager, Examination (GM)	The IRS auditor’s manager whom the taxpayer or his/her representative can contact regarding any disputes in an audit. The GM has specific duties in the examination, including concurring with all penalty determinations and resolving unagreed disputes before the taxpayer requests to go to IRS Appeals.
Information Document Request (IDR)	Form 4564, Information Document Request, is issued by an IRS auditor (revenue agent, tax compliance officer, or tax examiner) to request information, substantiation, and/or other documents or interviews in an audit.
IRS Independent Office of Appeals	An independent office within the IRS that impartially reviews determinations made by IRS enforcement functions, including unagreed audits and CP2000 determinations.
Large Business & International Division (LB&I)	LB&I Division serves and enforces compliance on corporations, subchapter S corporations, and partnerships with assets greater than $10 million as well as on high-wealth individuals. These taxpayers typically employ large numbers of employees, deal with complicated issues involving tax law and accounting principles, and conduct business in an expanding global environment. [IRM 1.4.40.1.7 (5-19-2010)]
Matching notice	Generally referring to IRS Notice CP2000, where the IRS AUR program identifies a filed return in which the income or payment information does not match the information reported on the return. This discrepancy notice may propose additional taxes, penalties, and interest to the tax return in which the taxpayer must agree or contest.
Office Audit	Also referred as a “desk audit.” A taxpayer audit (usually an individual) conducted at a local IRS office by a tax compliance officer.
Repetitive Audit	Taxpayer relief from a current year examination when the taxpayer was examined for one or both of the two preceding tax years and the audit resulted in a no change or a small tax change (deficiency or overassessment). Does not apply to taxpayers with a Schedule C or F. [IRM 4.10.2.13 (2-11-2016)]
Revenue Agent (RA)	An employee in the Examination function who conducts face-to-face examinations of more complex tax returns, such as businesses, partnerships, corporations, and specialty taxes, such as excise or employment tax returns.
Revenue Agent Report (RAR)	Form 4549, Income Tax Examination Changes, that provides the specific adjustments proposed to a tax return in an IRS audit.
Small Business/Self-employed Division (SB/SE)	SB/SE Division serves and enforces compliance on individuals filing Form 1040; Form 2106, Employee Business Expenses; Form 1120; Form 1120-S; or Form 1065, as well as other business returns with assets less than $10 million. SB/SE Division’s examination staff includes revenue agents, tax compliance officers, revenue officer examiners, and tax analysts who perform examinations either in the field or at a campus via a correspondence audit. [IRM 1.4.40.1.7 (5-19-2010)]
Statutory Notice of Deficiency (SNOD or 90-day letter)	A “statutory notice of deficiency” or “90-day letter,” is a legal notice in which the IRS determines the taxpayer’s tax deficiency. IRC §§6212 and 6213 require that the Service issue a notice of deficiency before assessing additional income tax, estate tax, gift tax and certain excise taxes unless the taxpayer agrees to the additional assessment. This is the last notice that allows the taxpayer 90 days to appeal without first paying the deficiency. [IRM 4.8.9.2 (8-11-2016)]
Tax Compliance Officer (TCO)	An employee in the IRS Examination function who primarily conducts examinations of individual taxpayers through office audits at IRS field offices.
Tax Examiner (TE)	An employee located in an IRS office who conducts examinations and reviews CP2000 responses through correspondence.
Wage and Investment Division (W&I)	W&I Division serves and enforces compliance on individual taxpayers who pay taxes through withholdings, prepare their own tax returns, receive refunds, and generally interact with the IRS one time per year. The W&I Division also works to provide balance in compliance and outreach activities, such as enhancing delivery of Earned Income Tax Credit Initiatives. Examinations within the W&I Division are mainly conducted at an IRS campus via correspondence. The substantial portion of the W&I Division’s compliance activities now revolve around addressing noncompliance involving refundable credits, including, but not limited to, the Earned Income, Child, Educational, and Premium Tax Credits. [IRM 1.4.40.1.7 (5-19-2010)]
30-Day Letter	This notice is issued in an IRS examination to allow the taxpayer to request an appeal with the IRS Independent Office of Appeals. Once the 30-day period expires, the taxpayer is issued a Statutory Notice of Deficiency (90-day letter) which allows a further appeal to the U.S. Tax Court prior to paying the deficiency. [IRM 4.10.8.12.1 (4-10-2023)]

IRS Audit and Appeal Process: IRS Roadmap Diagram

Navigating the IRS audit process can be difficult. In 2019, the Taxpayer Advocate Service provided a roadmap of the IRS audit and appeals process to assist taxpayers in understanding how the audit and appeals process works. [Taxpayer Advocate Service, 2018 Annual Report to Congress]

A broad overview of the mail, office, and field audit process appears below.

In 2024, 23,105 IRS Examination cases were sent to the IRS Independent Office of Appeals. [IRS Data Book, 2024, Table 29] The Appeals Office plays a critical part in resolving disputes in IRS examinations. The Taxpayer Advocate provides a brief overview of the appeals process to help taxpayers understand how IRS appeals works in Examination cases.

AUTOMATED UNDERREPORTER (CP2000) NOTICES

This section explains the IRS Automated Underreporter Program (AUR) and how-to resolve AUR inquires.

Topic	Covers
Automated Underreporter Program Overview	Includes: AUR notice inquiries AUR notice stream and timelines Common CP2000 discrepancies CP2000s and accuracy penalty assessment rules How to avoid a CP2000 inquiry Other important CP2000 items Eight best practices to follow.
AUR Notices	The AUR contact, response, and assessment notices used in Underreporter inquiries.
IRS AUR Contact Information	IRS AUR campuses and how to reach them by mail, phone, or fax.
Steps to Resolve a CP2000/2501 Underreporter Inquiry	The 11 steps to take to resolve a CP2000/2501 notice.
CP2000/2501 Response Format	The nine items to include in a CP2000/2501 response to the IRS.
CP2000/2501 Template Response Cover Letter	A template cover letter to use in responding to the IRS on a CP2000/2501 notice.
AUR Reconsideration and Appeals	How-to request reconsideration or appeal of a CP2000 determination.
CP2000 Example	A common CP2000 situation and the 11 steps/cover letter completed by the taxpayer.
CP2000/2501 Process and Action Grid	A detailed grid of the CP2000/2501 process.

Other helpful sections:

Topic	Covers
Accuracy-Related Penalties	How to address accuracy penalties in an underreporter notice.
IRS Transcripts	How to obtain IRS transcripts needed in preparing for an underreporter response.

Key Highlights:

• The most common IRS return challenge compliance enforcement program is the matching notice or CP2000 Automated Underreporter (AUR) program.
• CP2000 notices are not audits, but they do follow deficiency procedures similar to the procedures found in audits.
• CP2000 notices propose additional tax, penalties, and interest. The taxpayer must respond to contest the additional proposed deficiency, or the deficiency will be assessed and collected.
• The IRS commonly grants taxpayers CP2000 reconsideration if the taxpayer does not respond to a CP2000 notice before the IRS proceeds to assess the additional deficiency.
• CP2000 responses are very similar to mail audits. Taxpayers must provide a response disputing the proposed adjustments to an IRS campus. However, unlike audits, the CP2000 taxpayer does not need to provide books and records to substantiate his/her tax return position.

Automated Underreporter Program Overview

The IRS uses its Automated Underreporter (AUR) program to electronically match income information reported to the IRS by third parties, such as banks and employers, against information that taxpayers report on their tax returns to detect underreporting by individuals. This program occurs after the filing season and after refunds have been issued.

In 2013, the IRS identified 27.6 million returns with a discrepancy. [TIGTA Report 2016-40-065, Processes Are Not Sufficient to Assist Victims of Employment-Related Identity Theft, August 10, 2016] Due to resource constraints, the AUR Program cannot review every discrepancy it identifies. In 2024, the IRS AUR Program issued 1,126,664 CP2000 notices and 62,655 CP2501 notices to taxpayers with mismatch issues. [IRS FOIA Response 2025-000175, February 2025]

From 2011-2024, the number of AUR cases has generally decreased due to decreased personnel assigned to work AUR cases.

However, AUR cases take very little time at the IRS. Slight increases in personnel can yield significantly more AUR inquires. In 2011, the IRS was able to close 4.7 million AUR cases with only 2,343 employees. In 2019, IRS AUR resources could close 1.98 million AUR cases with 1,329 employees. In 2020, the AUR limited its operations due to the COVID-19 pandemic. As such, the number of CP2000s issued for 2020 decreased dramatically. In 2024, IRS CP2000 notice volume improved slightly, but IRS cutbacks will limit the number of CP2000 inquires in 2025.

The AUR program identifies both individual and business entity discrepancies. Currently, the IRS has limited business underreporter notice activity due to limited resources. For example, since 2012, the IRS has been able to match Forms 1099-K, Payment Card and Third-Party Network Transactions, information returns with both Forms 1040 and 1120 series returns for unreported income. [TIGTA Report 2019-30-016, February 14, 2019] In 2020, the IRS began matching 1099-Ks reported under an employer identification number and sending underreporter notices to these individual taxpayers based on potential unreported income on their personal return (Schedule C or E). [TIGTA Report 2021-30-002, Dec 30, 2020, Billions in Potential Taxes Went Unaddressed From Unfiled Returns and Underreported Income by Taxpayers That Received Form 1099-K Income] Currently the IRS issues limited business matching notices due to limited resources. Most 1099-K matching is done on individual returns in the CP2000 program. Businesses who receive an AUR inquiry receive Notice CP2531 or CP2030. [IRM 4.119.4.1.3 (9-6-2017)]

In Publication 5181, Tax Return Reviews by Mail, the IRS explains the AUR process for both individuals and businesses.

AUR Notice Inquiries

AUR inquiries consist primarily of the CP2000 notice. The CP2000 notice proposes changes to the tax return based on information returns on file with the IRS. The notice is not a final determination of a deficiency. Taxpayers can respond within 30 days of the notice in order to contest the deficiency. However, if a taxpayer does not respond, the CP2000 notice can also serve as a 30-day letter (offering the taxpayer the right to appeal to the IRS Independent Office of Appeals). [ IRS Publication 5181]

The IRS can also issue a CP2501 notice to the taxpayer to request an explanation for a discrepancy between items reported by the taxpayer on the tax return and the information provided by third parties regarding those items. If the taxpayer fails to respond or if the response is insufficient, the Service will send a CP2000 notice proposing an adjustment. [IRM Exhibit 1.4.19-1] The IRS uses the CP2501 in cases where there is a high amount of unreported income. Some situations include:

• Unreported income of $100,000 or more
• Schedule K-1 information returns with unreported income greater than $50,000
• Stock option situations
• Potential refund cases for unreported income with corresponding withholding
• Child investment income situations

[IRM 4.19.3.7 (12-15-2017)]

The IRS also can issue notice CP2057, Income Discrepancy (soft notice), that informs the taxpayer that there appears to be a discrepancy with income reported by a third party to the IRS. The notice provides information, such as, the name of the third party and the address. The CP2057 notice requests that the taxpayer review her records for accuracy. If the income reported on the return is accurate, the taxpayer does not need to contact the IRS. If the income was incorrectly reported to the IRS, the taxpayer should contact the third-party and request that the third-party payer verify and correct their records.

If the income reported on the tax return is not correct, the CP2057 requests that the taxpayer file an amended return. CP2057 inquiries do not escalate to a CP2000/2501 notice if the taxpayer does not reply. These notices serve only to provide the taxpayer information on the discrepancy and to give the taxpayer an opportunity to voluntarily correct the error by filing an amended return.

AUR Notice Stream and Timelines

The AUR process begins with IRS computers matching filed returns with the billions of information returns (W-2s 1099s, etc.) filed each year. This first match happens during the summer months on returns filed before the 4/15 deadline. Tax examiners screen returns for the highest probable errors and omissions, knowing that IRS resources may limit the number of AUR inquires that can be sent. In November, about seven months after the 4/15 returns are filed, the IRS tax examiners send the first round of CP2000 or CP2501 notices to taxpayers.

The normal IRS notice stream is as follows:

Sequence	Notice	Timeline	Taxpayer Actions
1: Inquiry	CP2000 issued	30 days to respond	Respond timely to notice or request additional time to respond. If taxpayer agrees, proceed to #5 (assessment and payment).
2: Response received	Recomputed CP2000	30 days to respond	Review IRS adjustments to original CP2000 notice for correctness and either agree/disagree. The taxpayer should request an appeal if the IRS disagrees with the taxpayer’s initial response.
3: 30-day letter	Original CP2000 or recomputed CP2000	30 days to request an appeal	Taxpayer can agree or request an appeal within IRS Independent Office of Appeals.
4: 90-day letter	CP3219A- Statutory Notice of Deficiency	90 days to petition US Tax Court	If the 90-day letter was issued without the IRS reviewing the taxpayer’s response, the taxpayer can request CP2000 reconsideration. If the 90-day letter is issued and the taxpayer wishes to dispute the CP2000 in court, taxpayer must timely petition the U.S. Tax Court to avoid assessment.
5: Assessment	CP22- Adjustment to taxpayer’s account	15-60 days after the 90-day letter expires or agreement sent to IRS	Pay the tax owed, or, if the taxpayer wants to appeal, he must request CP2000 reconsideration or follow claim for refund procedures.

If the taxpayer satisfies the IRS that there is no additional tax owed and the IRS accepts the return as originally filed, the taxpayer will receive a CP2005, No-Change Letter.

The timeline for a CP2000 inquiry with a tax change is as follows:

As indicated on the timeline, there are three CP2000 waves sent for each tax year:

Taxpayer who files:	CP2000 notice sent date:
Before 4/15 deadline	November-December
Between 4/15- 10/15	Following March-April
After 10/15 (late filer)	Following June-July

Note: During operational disruptions, the IRS did not adhere to their normal CP2000 notice release dates.

Common CP2000 Discrepancies

The most frequently identified discrepancies involve underreported securities sales (Forms 1099-B), wages (Forms W-2), taxable pensions (Forms 1099-R and SSA-1099), unemployment compensation (1099-G), and nonemployee compensation (1099-MISC). [TIGTA Report 2019-30-016, Expansion of the Gig Economy Warrants Focus on Improving Self-Employment Tax Compliance, February 19, 2019 and TIGTA Report 2015-30-037, Automated Underreporter Program Tax Assessments Have Increased Significantly; However, Accuracy-Related Penalties Were Not Always Assessed When Warranted, May 8, 2015]

Taxpayers can review IRM 4.19.3.8 (8-26-2016) to understand the proper response needed for each type of unreported income category and information return.

CP2000s and Accuracy Penalty Assessment Rules

The IRS may electronically and automatically assess an accuracy penalty for negligence or substantial understatement in a CP2000 notice.

The standard for assessing the substantial understatement penalty (understatement of tax exceeds the greater of 10% of the tax required to be shown on the return, or $5,000) is essentially a mathematical test. The business rules in the AUR system will automatically include the accuracy-related penalty on the CP2000 notice for those cases that involve a substantial understatement of tax liabilities. However, the AUR Program only assesses the negligence penalty after a taxpayer has multiple instances of understating income in the AUR Program. In other words, the only taxpayers in the AUR Program to be assessed the negligence penalty are those taxpayers who have a prior history of being subject to an additional tax assessment as a result of an underreporting discrepancy in the same income discrepancy category for at least twice in four consecutive tax years and did not meet the substantial understatement criteria. [IRM 4.19.3.18.6 (5-19-2017)] These taxpayers are referred to in the program as “repeaters” because they have a prior history of the same type of income discrepancy. [TIGTA Report 2015-30-037, Automated Underreporter Program Tax Assessments Have Increased Significantly; However, Accuracy-Related Penalties Were Not Always Assessed When Warranted, May 8, 2015]

An IRS manager is not required to approve the proposed penalty because accuracy penalties are assessed electronically in CP2000 notices. [IRM 4.19.3.22.1.4 (11-29-2023)] If a taxpayer contests an accuracy penalty in the CP2000 response, written manager approval is needed to sustain the accuracy penalty. [IRM 4.19.3.22.1.4 at (4) (11-29-2023)] The taxpayer can also appeal the proposed penalty with a timely petition to the Independent Office of Appeals.

Practice Tip: Inadvertently, taxpayers often do not contest an accuracy penalty proposed on a CP2000 when they agree with the amount of unreported income and additional tax. However, taxpayers who believe they qualify for non-assertion of the accuracy penalty should argue the penalty during the CP2000 response. When contesting the penalty with the CP2000 response, taxpayers should also request an appeal with the IRS Independent Office of Appeals should the IRS disagree with the taxpayer’s position. Failure to do so may result in the penalty being assessed on a Statutory Notice of Deficiency. After receiving the Statutory Notice of Deficiency, the taxpayer can contest the penalty in the U.S. Tax Court or by requesting CP2000 reconsideration. These remedies may take considerable time and effort to argue the penalty. It is best to argue the penalty with a timely response to a CP2000 before the Statutory Notice of Deficiency (CP3219A) is issued.

How to Avoid a CP2000 Inquiry

Taxpayers can avoid a CP2000 inquiry by matching their own information returns to the filed return before a CP2000 can be issued. Taxpayers can obtain their wage and income transcripts from the IRS that provide the information returns reported to the IRS. The complete wage and income transcripts are generally available for the previous tax year in July. The W&I transcript will accumulate and show the taxpayer’s timely filed information returns in July following the tax year in question. Taxpayers can request their transcripts online or by mail directly from the IRS.

The IRS also made some information returns available on IRS wage and income transcripts and the IRS individual online account for the 2024 tax year on March 31, 2025. Taxpayers and tax pros can use this information to insure that all information returns are included on the return. However, taxpayers should know that the March 31 version is likely not to include paper filed information returns and other returns that are due past the initial 1/31 deadline (e.g. Forms 5498). Taxpayers can check periodically to see if additional information returns appear online through transcripts on the online account.

Practice Tip: Jointly filed taxpayers need to order the wage and income (W&I) transcripts for both the primary and secondary taxpayers. Each taxpayer with a taxpayer identification number (TIN) has a separate wage and income transcript with Forms W-2, 1099, etc. reported under their TIN.

When comparing the filed tax return to the W&I transcript, the taxpayer can discover any missing income or deduction and credits. Taxpayers may find that there are additional income or deductions. Taxpayers can file an amended return to report the additional omitted items. If the taxpayer files an additional balance-owed amended return before the CP2000 notice is issued, he can avoid imposition of an accuracy penalty.

Practice Tip: Taxpayers with complex tax returns and many information returns (i.e., 1099s, etc.) may wish to file an extension and obtain their complete wage and income transcript in July. With the W&I transcript, the taxpayer can make sure he reports all income that has been reported to the IRS. This will avoid issuance of a CP2000 notice.

Other Important CP2000 Items

Taxpayers should be aware of the following six important aspects of a CP2000 AUR inquiry:

1. CP2000 inquiries are not audits: in IRS audits, the IRS auditor reviews the taxpayer’s books and records in determining the taxpayer’s proper tax liability. CP2000s are not audits. The taxpayer is not required to send in evidence to support his tax return position. [Revenue Procedure 2005-32]
2. Oral responses are allowed: the IRS can accept taxpayer statements, made by phone or in writing, to support a tax return position. [IRM 4.19.3.4.1 (10-24-2024)] Taxpayers who have simple explanations can contact the IRS by phone to explain the discrepancy. However, it is recommended that the taxpayer follow up in writing with the explanation to provide evidence of a timely reply.
3. Transcripts can show CP2000 activity and adjustments: IRS account transcripts will show the last AUR activity with a transaction code 922. Taxpayers with additional assessments will see a transaction code 290 with the additional tax assessed. [IRM 4.19.3.4.3.3 at (2) (10-02-2024)] Accuracy penalties will be shown on an account transcript with a transaction code 240. Account transcripts will not show the specific items that were adjusted on the original return. Interest on the assessment is shown on transaction code 196 with the corresponding CP22 notice which had been issued (reported with transaction code 971). An example of such a transcript appears below.
4. CP2000s can produce a refund to the taxpayer: taxpayers who review their returns in relation to a CP2000 response can determine and request a refund as a CP2000 response. Many taxpayers who do not report stock sales (Forms 1099-B) compute capital losses that reduce their prior tax liability and are entitled to a refund of prior taxes paid.
5. Appeal is available, but only if timely requested: CP2000s, like audits, follow deficiency procedures which allow for a prepayment appeal before the deficiency is assessed. However, taxpayers must request an appeal during the CP2000 response in order for it to be considered a timely appeal.
6. The IRS can provide copies of CP2000 notices: taxpayers who do not have a copy of their CP2000 notice can contact the IRS directly and have the notice sent to them. Tax professionals, with proper authorization, can have the IRS mail the notice directly to them. [IRM 4.19.3.22.2.4 (6-1-2023)]

Eight Best Practices for CP2000 Notice Inquiries

Taxpayers should utilize the following best practices for CP2000 notice inquiries:

1. Do not use a Form 1040X as a response: many taxpayers use an amended return (Form 1040X) to respond to a CP2000. However, this format can confuse the IRS and delay the closing of the CP2000 inquiry because the IRS may not recognize a Form 1040X as a CP2000 response. The confusion is caused because IRS procedures route Forms 1040X to the IRS return processing units whereas AUR responses go directly to the AUR compliance unit. It is strongly recommended not to use the Form 1040X as a response, but, if the taxpayer does use a Form 1040X as a reply, the taxpayer should write “CP2000 Response” on the top of the Form 1040X.
2. Review IRS wage and income transcripts for discrepancies: taxpayers should obtain their wage and income transcripts for the year in question and any future years to determine if all items are reported correctly. The taxpayer may find erroneous information returns or improper use of his taxpayer identification number (employment related tax identity theft) that needs to be addressed.
3. Timely request an appeal in all responses to the IRS in case the IRS disagrees: the CP2000 notice can serve as a 30-day letter. A 30-day letter provides the taxpayer the opportunity to appeal the discrepancies, including penalty determinations, with the IRS Independent Office of Appeals. Taxpayers should always include a request for an appeal with the IRS Appeals with all responses in order to timely request the appeal with the IRS. Once a 90-day letter (CP3219A, Statutory Notice of Deficiency) is issued, the taxpayer can no longer access the IRS Independent Office of Appeals to consider the dispute. [IRM 4.19.3.2.1.1 at (6) (10-02-2024)]
4. Contest penalties with a timely CP2000 response: penalties are not automatic in CP2000 cases. Taxpayers can contest the penalties with a timely CP2000 response. Taxpayers who agree with the tax, but contest the penalties, should provide a response to the IRS that outlines the facts, law, and argument supporting their case. [See our Accuracy Related Penalties Section for help with accuracy penalties]
5. Use the IRS Secure Messaging tool to respond: Many AUR notices have an “access code” to respond online. Taxpayers can use this tool to upload their response to the IRS. The response will be noted in the Secure Messaging application. If the taxpayer does not have an online access code to respond, they should fax the response to the IRS when the deadline to respond is less than ten days. Follow up with the AUR in a week by phone to make sure that the response was received.
6. Contact the AUR by phone to request additional time or for a status update: the best method to obtain additional time or to find out the status of an AUR case/response is to contact the AUR directly by phone. The IRS normally allows 30-day extensions to reply if the taxpayer timely requests the extension before the next notice is automatically issued. [IRM 4.19.3.22.2.5 at (9) (02-23-2024)]
7. Check the current year to avoid penalties: taxpayers who have reporting discrepancies in one year may have them for future filed years. The taxpayer should review the most current year to determine if there are similar discrepancies and file an amended return to avoid penalties.
8. Request CP2000 reconsideration if the IRS did not consider the response: once a taxpayer receives a CP3219A, the case is out of the IRS AUR workstream. If the IRS has not considered the taxpayer’s response, the taxpayer can request CP2000 reconsideration to have his information considered in determining the correct tax liability and penalties. [IRM 4.19.3.26 (1-28-2022)]

AUR Notices

Common AUR notices in the contact inquiry, response, and assessment phases appear below. [IRM 21.3.1.6.51 (10-2-2023)]

Contact Inquiry Notices

Notice #	Title	Used for:
CP2000	Request for Verification of Unreported Income, Payments, or Credits	Notifies taxpayer of a proposed change to tax liability because of income that is not identifiable or apparently not fully reported on the return and/or credits and deductions that appear overstated.
CP2501	Initial Contact to Resolve Discrepancy Between Income, Credits, and/or Deductions Claimed on Return and Those Reported by Payer	Pre-CP 2000 Contact Letter. In certain situations, an initial notice sent to the taxpayer requesting an explanation to resolve a discrepancy between items reported by the taxpayer on the tax return and the information provided by third parties regarding those items. If the taxpayer fails to respond or if the response is insufficient, the IRS will send a CP2000 notice proposing an adjustment. [IRM Exhibit 1.4.19-1]
CP2057	Soft Notice – Income Discrepancy	Informs the taxpayer there appears to be a discrepancy with income reported by a third party to the IRS. The notice provides information, such as the name of the third party and the address, requests that the taxpayer review his records and if the income reported on the return is correct or not. The taxpayer is instructed to file an amended return if the original return was not correct. [IRM 21.3.1.6.41 (5-14-2024)]
2531	Your Tax Return Doesn’t Match the Information We Have on File	Used in business underreporter cases and 1099-K discrepancy cases. [IRM 4.119.4.1.3 at (3) (9-6-2017)]
2030	Proposed Amount Due	Used in business underreporter cases and 1099-K discrepancy cases. [IRM 4.119.4.1.3 at (3) (9-6-2017)]

Response Notices

Notice #	Title	Used for:
4314C	Interim Response	When a quality response cannot be issued timely by the IRS, an automatic, interim response is sent on the 30th calendar day from the IRS-received date. [IRM 4.19.2.3.1 at (2) (09-12-2024)]
CP2005	AUR No-Change Letter	AUR Inquiry is closed with no change to the tax liability and/or refundable credits.
CP2006	We Received Your Response	The IRS needs additional time to resolve the CP2000 or the case has been transferred to another IRS office (IRS Examination) and the taxpayer should receive a response from that office within 60 days. [IRM Exhibit 1.4.19-3]
Letter 1802C	Conclusion of Underreporter Inquiry	Used generally to provide information at the close of the Underreporter case. Response may or may not be needed.
Letter 2625C	Request for Additional Information (also, a 30-day letter)	Used to correspond with an employer/payer to clarify income from a Form W-2, Wage and Tax Statement, and the Form 1099 series. Requests employer/payer to complete form and return.
Letter 2626C	Request for Additional Information (also, a 30-day letter)	Used to correspond with taxpayer to obtain additional information or to provide further explanation subsequent to a CP2000 or CP2501 notice. A response is usually expected.

Assessment Notices 

Notice #	Title	Used for:
CP3219A	Statutory Notice of Deficiency	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of the appeal rights to the U.S. Tax Court.
CP21E/CP22E	Assessment from a CP2000	Balance due from the AUR adjustment. [IRM 3.14.1.6.18.1.1 (1-1-2015)]

IRS AUR Contact Information

The AUR campuses can be reached by phone or by mail. Responses can also be faxed to the campus location.

Practice Tip: Taxpayers should always request an extension of time by phone to the AUR unit. The AUR employee can provide confirmation of the extension immediately while on the phone. AUR locations also have long wait times, especially immediately after each wave of new CP2000 notices has been sent. Taxpayers are encouraged to call early to avoid long wait times or courtesy disconnects. Taxpayers can also use a Power-of-Attorney (authorized representative with a properly executed Form 2848) to contact AUR through the Practitioner Priority Service line (PPS). PPS hold times are much shorter than taxpayer direct lines.

Wage & Investment (W&I) Campuses
IRS – AUR – Andover, MA PO Box 9038 Andover, MA 01810	Phone: (800) 829-3009 Fax: (877) 477-9485 Hours: 7 am-8 pm, local time
IRS – AUR – Atlanta, GA PO Box 621505 Atlanta, GA 30362	Phone: (800) 829-3009 Fax: (877) 477-0967 Hours: 7 am-8 pm, local time
IRS – AUR – Austin, TX Stop 6692 Austin, TX 73301	Phone: (800) 829-3009 Fax: (877) 477-0583 Hours: 7 am-8 pm, local time
IRS – AUR – Fresno, CA 5045 East Butler Ave Stop 86106 Fresno, CA 93888	Phone: (800) 829-3009 Fax: (877) 477-0962 Hours: 7 am-8 pm, local time
Small Business/Self Employed (SB/SE) Campuses
IRS – AUR – Brookhaven, NY PO Box 9012 Holtsville, NY 11742-9012	Phone: (800) 829-8310 Fax: (877) 477-959 Hours: 7 am-8 pm, local time
IRS – AUR – Ogden, UT AUR Stop 6653 1973 N. Rulon White Blvd. Ogden, UT 84201-0021	Phone: (800) 829-8310 Fax: (877) 477-9640 Hours: 7 am-8 pm, local time
IRS – AUR – Philadelphia, PA AUR Correspondence 5-E08-113 Philadelphia, PA 19255	Phone: (800) 829-8310 Fax: (877) 477-9602 Hours: 7 am-8 pm, local time

Phone contact information for tax professionals and appeals account resolution hotline contact phone numbers appear below.

Hotline	Contact Information	Hours of Operation
Practitioner Priority Service(tax professionals only)	(866) 860-4259 Option #5: Automated Underreporter Unit	M-F, 7AM-7PM, local time [ Practitioner Priority Service]
IRS Appeals Account Resolution	(559) 233-1267	Leave message, IRS responds in 24-48 hours [IRM 8.1.9.3 at (1a) (8-2-2016)]

Steps to Resolve a CP2000/2501 Underreporter Inquiry

Follow the steps below to resolve a CP2000/2501 notice.

Step	Action	Important Tips
1	Request additional time, if needed, to respond timely to the IRS	Contact the IRS by phone if the response will be late in order to avoid premature deficiency notice.
2	Obtain information needed to assess accuracy of the CP2000/2501 notice	Obtain original return, wage and income transcript, and additional items to recompute return.
3	Compute corrected return	Add omitted items to the return and recompute tax liability.
4	Review the notice for: agreement/disagreement/partial agreement	Compare CP2000 computation with corrected return for agreement/disagreement.If penalties are proposed, consider penalty argument.
5	Resolve any issues found	Research may have found employment related identity theft or erroneous information returns which need to be corrected.
6	Prepare organized response to IRS	Agreed response: send response form and payment option. Unagreed/partially agreed: send response letter with attachments.
7	Respond timely to IRS	Within 30-days: Fax response to IRS if needed. Upload the response to IRS Secure Messaging, if available. Periodically check on status of response with AUR by phone.
8	Resolve any disputes with IRS	Resolve disagreed items with tax examiner and/or IRS Independent Office of Appeals.
9	Close AUR case with IRS	Confirm AUR inquiry is closed: Agreed: CP22E and/or account transcript with additional tax assessment (TC 290). No-change: receipt of CP2005.
10	Make payment/set up collection alternative on remaining balance owed (if needed)	Can make payment with response or contact IRS with payment alternative after assessment notice (CP22E).
11	Review and correct any additional recent years for possible similar unreported items	If applicable, review more recently filed returns for accuracy and file an amended return before a future CP2000 is issued.

CP2000/2501 Response Format

Taxpayers who do not agree in whole or in part will need to respond to the IRS contesting all or part of the proposed assessment. Taxpayers should not use Form 1040X to respond, but should use the following response format to resolve the CP2000 expeditiously:

Response Section	Document	Tips
1	CP2000 Response Form	Indicate agreement or disagreement and payment method, if applicable.
2	Response cover letter	Include in the letter: Identifying reference information. Taxpayer(s) name and current address Taxpayer identification number(s) Form/Year, AUR Control # Statement that the letter is a CP2000 Response Statement of agreement or disagreement. Explanation of changes made to original return. If applicable, argument to contest penalties proposed. A request for an appeal with the IRS Independent Office of Appeals in case the IRS disagrees with the response. Attestation as to the facts presented, signed by the taxpayer(s).
3	Copy of CP2000	Include as a reference for the CP2000 tax examiner.
4	Copy of original return as filed	Provide a copy of the original return for reference. Write “ORIGINAL RETURN COPY FOR INFORMATION ONLY: DO NOT PROCESS” at the top of the return so the IRS does not mistake it for a return to be processed.
5	Copy of corrected return with omitted items (not a Form 1040X)	Provide a correct tax computation on a corrected return that includes the omitted items. Write “CORRECTED RETURN COPY: DO NOT PROCESS” at the top of the return so the IRS does not mistake it for a return to be processed.
6	Corrected tax adjustments worksheets that include omitted items	Includes any special computations made to reconcile the original return to the corrected return.
7	Supporting documentation	Include any documents that help support an unusual position in the response.
8	Payment and payment voucher	Include on the check: Primary taxpayer’s name and TIN Year/Form
9	Copy of any third-party authorization, if applicable	Include Form 2848, Power-of-Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, if applicable.

Practice Tip: Taxpayers should also number the pages in the response in order to make sure that the IRS receives all pages (i.e., 1 of 15, 2 of 15, 3 of 15, etc.). Page numbers will also help if the taxpayer needs to contact the IRS and discuss specific items in her response.

Following the response format above will provide the AUR tax examiner with a complete picture of the taxpayer’s position and the correct tax liability. The response letter is critical to contesting penalties and requesting an appeal if the IRS disagrees with the response.

CP2000/2501 Template Response Cover Letter

The CP2000/2501 cover letter is an important part of the response package sent to the IRS. The letter should:

• Identify the taxpayer, year, and form in question,
• State the taxpayer’s agreement, disagreement, or partial agreement,
• Outline the taxpayer’s position, including any disagreement as to penalties,
• Provide an index of documents so that the AUR tax examiner will understand the correct tax liability,
• Request a timely appeal if the IRS disagrees with the taxpayer’s position, and
• Attest, under penalties of perjury, that the facts presented are accurate.

It is important to attach the corrected tax return with the correct tax computation. This complete package will facilitate the IRS changes to the return and expedite the AUR resolution process.

This template cover letter appears in CP2000 Response and Correction of YYYY Form 1040.

Practice Tip: Disruption in IRS operations have delayed processing of many IRS correspondence, including CP2000 responses sent by mail. Taxpayers and tax professionals should consider sending in their CP2000 response using invited online response tool or by fax to the IRS AUR unit in order to get their information into the IRS workstream quicker than if they sent their response by mail. The taxpayer should follow up in four weeks to make sure that the IRS has recorded the response. If invited by notice, taxpayers can also use the IRS “Secure Messaging” feature on IRS.gov to respond to a CP2000 notice. Taxpayers can go to https://www.irs.gov/help/welcome-to-secure-messaging, login using their ID.me credentials, and send a message/documents to the IRS regarding their specific CP2000 inquiry. This feature is not available to all taxpayers but may be a streamlined method to get answers about the CP2000 inquiry. If a tax pro is responding on behalf of a taxpayer, both the tax pro and the taxpayer should have an online account. If the taxpayer does not have an online account, the IRS can reject the response. The tax pro will receive a notification in their Secure Messaging application that the taxpayer needs to obtain on online account for the response to be valid.

AUR Reconsideration and Appeals

Taxpayers with premature CP2000 assessments or erroneous CP2000 determinations can be eligible for reconsideration and an independent review at the IRS Independent Office of Appeals.

CP2000 Reconsideration

When the IRS prematurely assesses a CP2000 proposed adjustment, the taxpayer can request reconsideration. A CP2000 reconsideration request is processed by the same AUR unit that completed the original assessment. [IRM 4.19.3.26.5 at (4) (1-28-2022)] CP2000 reconsiderations are common and the IRS routinely adjusts prior assessments based on taxpayer late responses of information that would have avoided the premature assessment.

Practice Tip: Most CP2000 reconsiderations occur for two reasons: (1) the taxpayer does not send a response before the deadline, and/or (2) the taxpayer inadvertently agrees to an accuracy penalty and wants to contest the penalty after it is assessed.

Taxpayers can request reconsideration any time after the Statutory Notice of Deficiency (CP3219A) is issued by the IRS. [IRM 4.19.3.26 (1-28-2022)]

Practice Tip: The IRS will put a 9-15 week collection hold on the taxpayer’s balance due account for any CP2000 Reconsideration request received by the IRS after the tax has been assessed (CP22E). [IRM 4.19.3.26.4 (6-19-2018)] However, the IRS frequently takes longer than nine weeks to complete a CP2000 reconsideration and taxpayers should monitor their account and contact the IRS to make sure that a collection hold remains on the account until after the CP2000 reconsideration is completed.

If a CP2000 proposed adjustment was assessed and the taxpayer has paid some or all the balance (by payment or refund offset), the taxpayer will need to consider the refund statute of limitations for any reconsideration request. Generally, a claim for refund must be filed within three years from the time the original return was filed or two years from the time the tax was paid, whichever is later. Claims for refund must be filed on or before the refund statute expiration date. Although a request for reconsideration may be valid, actual refunds and/or credits may not be allowable depending on when the payments were made, or offsets applied. [IRM 4.19.3.26.6 (10-02-2024)]

To request CP2000 reconsideration, the taxpayer should prepare the same response package as the original CP2000 response. However, on the cover letter, the taxpayer should state that the request is for “CP2000 Reconsideration.” The taxpayer should also include a copy of the premature assessment notice issued by the IRS.

Practice Tip: Taxpayers who have received the Statutory Notice of Deficiency (CP3219A) but have not had the 90 days expire (necessary to petition the U.S. Tax Court) should consider protecting their pre-payment appeal rights by timely filing a petition. Most CP2000 tax determinations are not contested by the IRS (a CP2000 is not an audit) and filing a petition with the Tax Court is usually not necessary. However, taxpayers should consider filing a petition with the Court if the taxpayer is presenting an argument that the income is not taxable or that a deduction or credit should be allowed that is not supported by the information return. [IRM 4.19.3.2.1.1 at (4) (10-02-2024)] Once the 90 days has expired, the taxpayer must technically follow the claim for refund procedures (which means paying the tax first before suing the IRS to contest the tax). Claim for refund procedures are usually not a practical remedy for most CP2000 assessments. However, when a taxpayer files a petition with the U.S. Tax Court, the IRS Independent Office of Appeals will likely intervene and allow the taxpayer an appeal within the IRS. [IRM 4.19.3.2.1.1 at (5) (10-02-2024)]

Appealing a CP2000 Determination

Taxpayers with disagreements should first contact AUR and attempt to resolve their issue with a tax examiner and/or the manager. If the taxpayer and the IRS cannot agree, the taxpayer can appeal the IRS determination. It is not often that taxpayers need to request an appeal with the IRS on CP2000 issues. However, in order to protect their appeal rights, taxpayers should always request an appeal with all responses to the IRS in AUR cases.

The CP2000 notice process does not communicate the ability for the taxpayer to appeal their CP2000 determination with the IRS Independent Office of Appeals. However, taxpayers can appeal unagreed issues with IRS Appeals if they timely request an appeal. The AUR notice stream does not explicitly indicate the timing to request such an appeal. In fact, the IRS may send a recomputed CP2000 notice as the response to the taxpayer’s position. This recomputed CP2000 can serve as the 30-day letter – and the opportunity for the taxpayer to request an IRS appeal. Often, taxpayers are surprised by an IRS issuance of a Statutory Notice of Deficiency (CP3219A) which closes the opportunity to obtain an appeal with the IRS Independent Office of Appeals.

To protect the taxpayer’s appeal rights, ALL CP2000 responses to the IRS should contain the following statement in the response cover letter:

Practice Tip: It is unusual for taxpayers to request an appeal with the IRS for a CP2000 determination. Often taxpayers receive a Statutory Notice of Deficiency without the opportunity to obtain the requested appeal. If the taxpayer has requested a timely appeal and the IRS ignores it (i.e., sends the CP3219A), the taxpayer should contact the Taxpayer Advocate Service to explain the circumstances and request the appeal.

When presenting their case before IRS appeals, the taxpayer should complete Form 12203, Request for Appeals Review, if the amount of proposed tax, penalties, and interest is $25,000 or less. If the amount is above $25,000, the taxpayer should complete a custom request that outlines the facts, law, argument, and taxpayer’s position.

The appeals hearing process is similar to the mail audit appeals process.

CP2000 Example

Example 2-1 Jeremy and Lindsey Hinds filed their 2017 Form 1040 on April 1, 2018. On November 28, 2018, the Hinds received a CP2000 notice stating that they did not report $53,840 in stock sales from four 1099-Bs reported to the IRS.

The Hind’s followed the steps below in researching, responding, and resolving their CP2000 inquiry.

Step	Action	Completed
1	Request additional time, if needed, to respond timely to the IRS	The Hinds do not need additional time. The 30 days expire on December 28, 2018. The Hinds will respond on December 2, 2018, well before the deadline.
2	Obtain information needed to assess accuracy of the CP2000/2501 notice	The Hinds obtained their 2017 tax return and the information used to prepare their return. They were also able to access their wage and income transcripts (both Jeremy and Lindsey) using the IRS online Get Transcript tool. The Hinds also realized that the four 1099-Bs were from an old brokerage account that they closed at the beginning of 2017. They did not receive the statements but were able to obtain documents showing their cost basis in the four stock sale transactions.
3	Compute corrected return	The Hinds prepared a corrected return – reporting the four 1099-Bs and the associated cost basis. The additional tax is $89.
4	Review the notice for agreement/ disagreement/ partial agreement	The Hinds completed the IRS CP2000 response form, noting their disagreement with the proposed adjustment.
5	Resolve any issues found	There are no other issues to resolve (all information statements are correct and the 2018 return has not yet been filed).
6	Prepare organized response to IRS	The Hinds prepare a cover letter explaining their circumstances and providing additional documentation to the IRS, including: A copy of the CP2000 The CP2000 response form A copy of the 2017 original return, as filed – watermarked as “ORIGINAL RETURN — COPY FOR INFORMATION ONLY: DO NOT PROCESS” Copy of the corrected return – watermarked as “CORRECTED RETURN COPY: DO NOT PROCESS” Worksheet showing the corrected short-term and long-term capital gains included on the corrected return Schedule D/Form 8949 Broker statement showing the cost basis of each stock sold Payment for $89
7	Respond timely to IRS	The Hinds sent their timely response to the IRS on December 2, 2018.
8	Resolve any disputes with IRS	The IRS accepts the Hinds’ response.
9	Close AUR case with IRS	The Hinds receive the final CP22E, noting the adjustment to the return.
10	Make payment/set up collection alternative on remaining balance owed (if needed)	The Hinds have $9 in interest to pay according to the CP22E. They Hinds send in their payment upon the receipt of the CP22E.
11	Review and correct any more recent years for possible similar unreported items	The Hinds did not file their 2018 return as it is not yet due. They note to report all 1099-Bs next year to avoid receiving a CP2000 notice.

The cover letter sent to the IRS was as follows.

CP2000/2501 Process and Action Grid

The following grid outlines the CP2000/2501 notice stream and compliance activity. For each phase, the grid provides:

• What happens
• Common issues
• Timeframes
• Time to respond
• Request for additional time
• Letters/forms used
• Recommended actions

IRS CORRESPONDENCE (MAIL) AUDITS

This section explains the IRS mail audit process and how-to resolve a mail audit.

Topic	Covers
Overview of IRS Correspondence Exams (Mail Audits)	Includes: Mail audits and CP2000s – a similar process Mail audits – what to expect Types of mail audits Refund hold/questionable refund program (QRP) issues Discretionary mail audit issues Mail audit notice process and timeline Other important mail audit items
Mail Audit Notices	Commonly issued mail audit contact, response, and determination/assessment notices.
IRS Correspondence Exam Contact Information	IRS Correspondence Examination campuses and how to reach them by mail, phone, or fax.
Important Internal Revenue Manual Guidance for Mail Audits	Parts of the IRS’s IRM that assist in understanding how to reply to IRS mail audits.
Steps to Resolving a Mail Audit Inquiry	The nine steps to take to resolve a mail audit notice.
Mail Audit Response	The items to include in a mail audit response to the IRS.
Mail Audit Template Response Cover Letter	A template cover letter to use in responding to the IRS on a mail audit notice.
Mail Audit Reconsideration and Appeals	How-to request reconsideration or appeal of a mail audit determination.
Mail Audit Example	A common mail audit situation and the nine steps/cover letter to be completed by the taxpayer.
Mail Audit Process and Action Grid	A detailed grid of the mail audit process.

Other helpful sections:

Topic	Covers
Accuracy-Related Penalties	How to address accuracy penalties in an audit or underreporter notice.
IRS Transcripts	How to obtain IRS transcripts needed in preparing for an IRS audit and underreporter response.

Key Highlights:

• The mail audit is the most common type of IRS audit. In 2024, 77% of all audits were done by mail.
• Most mail audits involve issues related to returns where the IRS has frozen the refund due to questionable refundable credits (earned income tax credit, additional child tax credit, etc.).
• Common discretionary mail audit issues include filing status, dependents, itemized deductions, credits, capital gains, alimony, small business expenses, and self-employment tax.
• The mail audit process is very similar to the Automated Underreporter process. Both are done at IRS’s campuses and involve an automated notice process. However, in mail audits, the IRS does request records from the taxpayer to substantiate return items.
• Overview of IRS Correspondence Exams (Mail Audits)

The most common audit is the IRS correspondence examination or “mail audit.” A mail audit is conducted by an IRS tax examiner at one of the ten IRS campuses (formerly referred to as “IRS Service Centers”). As the method suggests, mail audits are conducted by an exchange of notices and information by mail or fax between IRS tax examiners and the taxpayer.

Mail audits focus on simpler tax issues, including tax credits on lower income taxpayers and deductions/credits that can be substantiated by a mail response. Each year hundreds of thousands of taxpayers experience a mail audit. [IRS Data Books, 2005-2024, Table 17 and Table 18]

Mail audits make up 78% of all audits and outnumber office and field audits 3:1. [IRS Data Books, 2005-2024, Table 17 and Table 18]

 

In 2024, 68% of all individual mail audits involved taxpayers with less than $50,000 in income, largely with taxpayers claiming refundable credits, like the earned income tax credit. [IRS Data Book, 2024, Table 18]

According to the Taxpayer Advocate’s Office, a majority of IRS audits target lower-income taxpayers, and the EITC is the primary issue in most mail audits. [Taxpayer Advocate Service 2021 Annual Report to Congress, Most Serious Problem #9 – Correspondence Audits] (Note: The IRS no longer publishes EITC audit rates as of 2019. However, IRS operations have not significantly changed regarding using audits to protect against issuing erroneous EITC refunds.)

In comparison to other mail audit issues, the EITC audit area far exceeds other audit projects in 2018. [Taxpayer Advocate Service 2018 Annual Report to Congress, Most Serious Problem #8 – Correspondence Examinations]

In 2024, 38% of all individual audits involved challenging the EITC [IRS Data Book 2024, Table 18]

The IRS also uses mail audits in some non-filer investigations. Correspondence Exam tax examiners can file a substitute for return (“SFR”) if a taxpayer refuses to file. Taxpayer who are subject to a mail audit non-filer investigation and SFR filings must ultimately file their original returns through the Correspondence Exam unit in order to have them accepted. Tax examiners screen the filed return for accuracy and can further examine any issues that appear to be questionable.

Mail Audits and CP2000s — A Similar Process

Dealing with a mail audit is very similar to dealing with an IRS underreporter or CP2000 notice. Both mail audits and CP2000 notices:

• Follow deficiency procedures which allow the taxpayer the right to contest the determination (appeal) before the additional tax is assessed. [IRC §6213]
• Can serve as taxpayer notifications of both an adjustment to the return and an offer for an IRS appeal. The mail audit and CP2000 notice, if unanswered, can both proceed to the Statutory Notice of Deficiency (90-day letter) which closes the ability of the taxpayer to contest the determination within the IRS Independent Office of Appeals.
• Are processed by tax examiners located in central IRS campuses. The tax examiners process responses and attempt to resolve audit/CP2000 notices. However, a single tax examiner is not assigned to a mail audit or CP2000 inquiry from beginning to end. Initial and subsequent taxpayer interactions and responses are handled by the next available tax examiner in the queue.
• May take a considerable amount of time for the IRS to respond to taxpayer responses. Both experience significant delays due to IRS resource constraints or taxpayer improper response formats.

However, mail audits and CP2000s are different. Unlike mail audits, CP2000s do not request the taxpayer to provide books and records to support a tax return position. Mail audits require the taxpayer to provide substantiation and supporting documentation to prove an item on the return. For example, a mail audit letter may ask the taxpayer to provide cancelled checks and acknowledgement letters to support cash contributions deducted as an itemized deduction.

Mail audits routinely involve the IRS questioning a refundable credit, such as the earned income tax credit. In mail audit cases, it is common for the IRS to freeze the refund until the audit is complete. In CP2000 cases, the IRS does not freeze a refund. Mail audits with refund holds start quickly after the return is filed. CP2000s begin 7-8 months after the return is filed, refunds have been issued, and the IRS has the opportunity to compare information returns to the filed return to determine if there are omitted items.

Mail Audits — What to Expect

IRS mail audit standard operating procedures are outlined in Part 4 of the IRS Internal Revenue Manual.

Mail Audit Procedures and Features

Location	By mail (IRS campus)
Timing	Starts immediately after filing, especially for refund hold scenarios
Taxpayers	Generally, only individual taxpayers. Businesses can sometimes be subject to a mail audit on a specific issue that the IRS can effectively conduct by mail.
IRS auditor	Responses are examined by the next available tax examiner. No one tax examiner is assigned to the audit.
Auditor authority	Limited to issues/year. Can escalate audit to office/field exam.
Scope	Usually 2-4 issues; refund hold issues (EITC, ACTC, PTC)
Review for unreported income	Matching only (similar to CP2000 matching process). EITC audits can question whether the taxpayer has income to qualify for EITC.
Related/prior/subsequent year return analysis	Very limited largely because future years have not yet been filed and the IRS rarely audits a prior year in a mail audit case. EITC abuse cases and non-filer mail audits on multiple year non-filers are the exception.
Penalties that can be imposed	Accuracy for negligence and/or substantial understatement.
Duration	1-6 months (longer if multiple responses are sent or if the determination is appealed).

IRS Publication 3498-A, The Examination Process (Audits by Mail), explains the IRS mail audit process.

Types of Mail Audits

Most mail audits fall into two categories:

• Refund hold [IRM 21.5.10.3.2 (10-1-2017)] or questionable refund program [IRM 4.19.14.9 (1-1-2024)] audits, or
• Discretionary mail audits [IRM 4.19.15 (10-16-2024)]

Refund hold or “pre-refund” audits are used when the IRS has information that indicates that the taxpayer’s return has an error that will lower or eliminate the refund. [IRM 4.19.14.1.1 (1-3-2023)] There are two main issues the IRS considers pre-refund audits: refundable credits (EITC, child tax credit, etc.) and premium tax credit errors. For example, taxpayers who have claimed the earned income tax credit based on income reported on a potentially fake W-2 or erroneous dependent may be flagged for an EITC refund hold mail audit.

Tax returns may be selected for a discretionary audit because they have a higher probability of errors or the characteristics of the tax return meet IRS compliance project criteria.

Correspondence exams are reserved for simple issues that can easily be verified by mail and where inspection of prior or subsequent year returns is not necessary. [IRM 4.19.11.2 (12-22-2023)] Both the IRS W&I and SB/SE Divisions have Correspondence Exam units. Examples of issues for specific types of audits (Correspondence v. field and W&I v. SB/SE) appear below. [IRM 4.19.11.3.2 (12-22-2023)]

Wage and Investment (W&I) Correspondence Exam	Small Business/Self Employed (SB/SE) Field Exam	Small Business/Self Employed (SB/SE) Correspondence Exam
Filing Status/Exemption Issues
• Dependent exemptions when refundable credits are claimed (EITC, ACTC, AOTC, PTC, refundable adoption credit).		Issues that are conducive to W&I are also conductive to SB/SE with the following additions: Adoption credit (non-refundable) Child Care Credit
Income Issues
Wages Interest Dividends Unemployment compensation Social Security income received	Any income issue that is beyond the scope of a correspondence examination, should be selected for Field Examination, such as: Forgiveness of debt Deferred compensation Schedule D issues that require Examination of capital gains/losses, Form 4797	Schedule C – income/expense issues Schedule E – Rental real estate, royalties, etc. Schedule F – Farm income/loss Other Income received and needs to be characterized as Self Employment income Taxable refunds Alimony Income exclusions such as personal injury, sick pay, disability pay IRA/Pension distributions
Adjustment to Income Issues
		One-half of the Self-employment tax Self-Employment health Insurance deduction Self-employed SEP, SIMPLE IRA Deductions Moving expenses Alimony paid
Itemized Deductions versus Standard Deductions
	Items that should be selected for Field’s Examination: Investment Interest Expense Non-cash charitable contributions such as donation of property (for example, artwork, or item that requires appraisal or engineering) Contribution payments that are carried over from prior year Complex casualty theft/loss that requires research and verification of records Miscellaneous deductions such as: investment expenses, attorney fees, gambling losses, transportation expenses	Employee business expenses – Form 2106 Home office deductions Casualty theft/loss that does not require field work Medical and dental expenses Real estate taxes State taxes paid Home mortgage interest Points paid Charitable contributions such as cash contributions Can consider working cases with Non-cash, contributions, such as: clothing, furniture, car, etc. Donated properties that do not require appraisal or engineering referral Casualty or theft loss that is verifiable through correspondence audit Miscellaneous deductions such as union dues, job education expenses, work clothes, etc.
Tax
	Alternative Minimum Tax	Alternative Minimum Tax Self-Employment tax Household employment tax 10% tax on IRA early withdrawal
Refundable Credits (Pre-Refund)
American Opportunity Tax Credit Child Tax Credit and Additional Child Tax Credit Earned Income Tax Credit Fuel Tax Credit Health Coverage Tax Credit Premium Tax Credit		Note: Issues that are conducive to W&I are also conducive to SB/SE.
Refundable Credits (Post-Refund)
Earned Income Tax Credit Additional Child Tax Credit – ITIN Returns		Additional Child Tax Credit – Non-ITIN Returns Adoption Credit Alternative Minimum Tax Credit (Form 8801) Premium Tax Credit
Other Credits
Mortgage Interest Credit-Pre-Refund		Mortgage Interest Credit-Post-Refund

Refund Hold/Questionable Refund Program (QRP) Issues

Most refund hold mail audits are conducted by the W&I Correspondence Exam unit and its tax examiners. Most refund holds are aimed at combating refundable credit errors and abuse. This strategy includes the examination of EITC and any similar or related issues, such as:

• Dependent(s)
• Filing Status
• Schedule C Gross Receipts
• Child Tax Credit
• Child and Dependent Care Credit
• Education Credit
• American Opportunity Credit
• Adoption Credit
• False or Inflated Income
• Premium Tax Credit

[IRM 4.19.14.4 (01-01-2025)]

In the mail audit process, IRS tax examiners use templated letters and forms to streamline the examination of common issues. Letters include:

• CP75/75A for EITC issues
• CP06/06A for Premium Tax Credit issues
• Letter 566 Series for related issues that may impact EITC and other credits/deductions

[IRM 4.19.14.4 (01-01-2025)]

The IRS provides template forms to help the taxpayer provide information to support items reported on their return: [IRM 4.19.14.4 (01-01-2025)]

Form	Request for Information:
886-H-HOH	Supporting Documents To Prove Head of Household Filing Status
886-H-DEP	Supporting Documents for Dependency Exemptions
886-H-AOC	Supporting Documents to Prove American Opportunity Credit
886-H-AOTC-MAX	American Opportunity Tax Credit Available for a Maximum of 4 Years
14815	Supporting Documents to Prove the Child Tax Credit (CTC) and Credit for Other Dependents (ODC) for 2018-2025
886-H-ITIN	Dependent – Related Tax Benefits and Credits – Explanation of Items
886-H-EIC	Documents You Need to Send to Claim the Earned Income Credit on the Basis of a Qualifying Child or Children for Tax Year 2019
14950	Premium Tax Credit Verification
14801	Child and Dependent Care Credit – Explanation of Items
14803	Duplicate Education Credit & Tuition Deduction
14809	Interest Paid
14806	Adoption Credit Documentation Requirements
14808	Schedule A – Medical and Dental Expenses
14810	Schedule A – Taxes Paid
14804	Schedule A – Gifts to Charity
14805	Casualty and Theft Loss
14824	Supporting Documents to Prove Filing Status
14978	Moving Expenses Deduction Supporting Documents
13825	Employee Business Expenses
11652	Questionnaire – Form 1040 Schedule C
14800	Child Tax Credit and Additional Child Tax Credit

The IRS can also customize a request for information. The taxpayer should use Form 4564, Information Document Request (IDR).

Discretionary Mail Audit Issues

Most discretionary mail audits are a single year verification of two-four issues on the tax return. Most discretionary audits involve the following common issues:

• Dependent exemptions when refundable credits are claimed
• Wages
• Interest
• Dividends
• Unemployment Compensation
• Social Security Income Received
• American Opportunity Tax Credit (AOTC)
• Child Tax Credit
• Additional Child Tax Credit (ACTC), including ITIN returns
• Earned Income Tax Credit (EITC)
• Fuel Tax Credit
• Health Coverage Tax Credit
• Premium Tax Credit
• Mortgage Interest Credit Pre-Refund
• Dependent exemptions when Adoption Credit and Child Care Credit are claimed
• Schedule C – income/expense issues
• Schedule F – Farm income/loss
• Other Income to be characterized as Self-Employment income
• Taxable Refunds
• Alimony
• Income exclusions such as personal injury, sick pay, disability pay
• IRA/Pension distributions
• Adjustment to Income issues (for example, Self-Employment Tax adjustment and Moving Expenses)
• Employee Business Expenses – Form 2106
• Home Office deductions
• Casualty theft/loss not requiring in-person audit
• Medical and Dental Expenses
• Real Estate Taxes
• State Taxes Paid
• Home Mortgage Interest
• Points paid
• Charitable Cash Contributions
• Charitable Non-Cash Contributions, not requiring an appraisal or engineering referral
• Miscellaneous Deductions
• Alternative Minimum Tax
• Self-Employment Tax
• 10% Tax on early retirement savings withdrawal
• Additional Child Tax Credit Non-ITIN Returns
• Adoption Credit
• Alternative Minimum Tax Credit (Form 8801)

[IRM 4.19.11.4.3.2 (12-22-2023)]

In discretionary audits, the IRS will issue Letter 566-S, Initial Contact Letter, outlining the issues selected for examination. [IRM 4.19.13.8 (4-6-2022)]

Practice Tip: Mail audits are sometimes referred to as “checklist audits” – meaning that the issues selected can generally be resolved by completing an IRS checklist and attaching supporting documentation. Taxpayers should focus their responses to address the selected tax return issues only. The IRS rarely expands audits outside of the selected areas and does not audit unreported income outside of information returns received where the income is not reported on the return.

If the IRS believes that an adjustment is warranted, the tax examiner may issue a Letter 566-B, Initial Contact Letter with Audit Report, with Form 4549, Income Tax Examination Changes. Letter 566-B with Form 4549 serves as “combination letters” – that is, if the taxpayer does not reply on time or satisfactorily to resolve the issue, the IRS may issue the Statutory Notice of Deficiency (Letter 3219) next. [IRM 4.19.13.11 (9-16-2024)] Once the Statutory Notice of Deficiency is issued, the taxpayer can no longer appeal to the IRS Independent Office of Appeals.

The Form 4549 will list all of the adjustments, including penalties proposed, on the form for each year under audit. The Form will also show the proposed tax due.

The IRS will explain the adjustments to the return on Form 886-A, Explanations of Items.

Practice Tip: It is very important for taxpayers to reply to CP2000 and mail audit combination letters on time and to request an IRS appeal if the IRS disagrees with the taxpayer response. IRS response forms to CP2000s and mail audits do not mention the need to request a timely appeal. In all responses to CP2000 and mail audit inquires, taxpayers should always request an appeal or risk possibly forfeiting their IRS appeal rights.

Mail Audit Notice Process and Timeline

The normal IRS notice stream for mail audits is as follows:

Sequence	Notice	Timeline	Taxpayer Actions
1: Initial contact [IRM 4.19.13.8 (4-6-2022) and IRM 4.19.14.4 (01-01-2025)]	CP75/CP06 series or Letter 566 issued	30 days to respond	Respond timely to notice or request additional time to respond.
2: Response received, and more information is needed [IRM 4.19.13.11 (09-16-2024)]	692 – Request for Reconsideration of Additional Findings (with attached audit report) – also serves as a 30-day letter	30 days to respond	Response is received. If the IRS needs more information, it will send Letter 692 with a revised audit report. If the taxpayer does not respond or provides inadequate information, the next letter will be the Letter 3219.
3: 30-day letter [IRM 4.19.13.11.1 (09-16-2024)]	525 – 30-day letter	30 days to request an appeal	Taxpayer can agree, provide additional information, and/or request an appeal with the IRS Independent Office of Appeals.
4: 90-day letter [IRM 4.19.13.13 (09-16-2024)]	3219- Statutory Notice of Deficiency	90 days to petition U.S. Tax Court	If 90-day letter was issued without IRS reviewing taxpayer’s response, taxpayer can request mail audit reconsideration. If 90-day letter is issued after IRS/taxpayer disagree, taxpayer must petition US Tax Court to avoid assessment.
5: Assessment	CP22E – Adjustment to taxpayer’s account	15-60 days after agreement or default assessment	Notice of the adjustment to the account. If taxpayer wants to appeal, he or she must request mail audit reconsideration or follow claim for refund procedures.

If the taxpayer sends more information after the Statutory Notice of Deficiency (Letter 3219), the IRS will issue Letter 555 that advises the taxpayer that he has a choice to file a petition with the Tax Court or to request rescission of the Statutory Notice. As a practical remedy, taxpayers should request audit reconsideration if they are providing new information after the issuance of a 90-day letter.

If the taxpayer satisfies the IRS that there is no additional tax owed and the return is accepted as originally filed, the taxpayer will receive Letter 590 or CP3581, No-Change Letter. [IRM 4.19.13.30 (8-4-2022)]

Other Important Mail Audit Items

Taxpayers should be aware of the following seven important aspects of a mail audit:

1. Reconsideration is available if taxpayer does not respond to the initial mail audit: mail audit reconsideration is frequently requested because many taxpayers fail to reply to the initial audit notice. The Taxpayer Advocate’s office reports that mail audits have over a 44% non-response rate, requiring the taxpayer to ask for reconsideration to “undo” the default audit assessment. [Taxpayer Advocate Service 2023 Annual Report to Congress]
2. “Substantially correct tax liability:” in IRS audits, the IRS auditor reviews the taxpayer’s books and records in determining the taxpayer’s proper tax liability. Many times, the taxpayer cannot find past receipts to support every item reported on the return. IRS tax examiners are instructed to arrive at the “substantially correct tax liability” and accept the taxpayer’s reconstruction of items as evidence in circumstances in which the taxpayer has provided substantially all the information required. [IRM 4.10.3.3.1 (2-26-2016)]
3. Oral responses are allowed: the IRS can accept taxpayer statements, made by phone or in writing, to support a tax return position. [IRM 4.10.3.4 (5-3-2023)] Taxpayers who have simple explanations can contact the IRS by phone to explain the discrepancy. However, it is recommended that the taxpayer follow up in writing with the explanation to provide evidence of a timely reply.
4. Transcripts can show audit activity and adjustments: IRS account transcripts will show the audit selection, audit assessment, and penalties assessed. See below.
   1. Audit selection: IRS transaction code 420 or 424
   2. Taxpayers with additional assessments: IRS transaction code 300 with the additional tax assessed. (TC 301 will be used for a refund)
   3. Accuracy penalties: IRS transaction code 240.
   4. Tax return and account transcripts will not show the specific items that were adjusted on the original return. [IRM 21.2.3.2.1 at (5) (3-30-2021)]
   5. Interest on the assessment is shown on transaction code 196 with the corresponding CP22E notice (reported with transaction code 971).
   6. [IRS 2023 Document 6209, ADP and IDRS Information, Section 8A]
   8. 
5. Mail audits can produce a refund to the taxpayer: taxpayers who review their returns in relation to a mail audit response can request a refund in the response.
6. Appeal is available, but only if timely requested: mail audits follow deficiency procedures which allow for prepayment appeal before the deficiency is assessed. However, taxpayers must request an appeal during the mail audit response in order for it to be considered a timely appeal.
7. The IRS can provide copies of audit reports: taxpayers who do not have a copy of their mail audit determination (Forms 4549 and 886-A) can contact the IRS directly and have the notice sent to them. The IRS takes about 60 days to send the prior audit report to the taxpayer. [IRM 21.5.10.4.4 at (2) (05-21-2024)]

Mail Audit Notices

Mail Audit Contact Letters (Refund Hold and Questionable Refund Programs)

Notice #	Title	Used for:
CP75	Exam Initial Contact Letter – EITC – Refund Frozen	EITC audits in which the IRS has frozen the taxpayer’s refund until the taxpayer can prove they are entitled to the EITC. [IRM 4.19.14.4 (6-22-2023)]
CP75A	Exam Initial Contact Letter – EITC – No Refund Frozen	EITC audits in which the IRS has not frozen the taxpayer’s refund. [IRM 4.19.14.4 (01-01-2025)]
CP06	Exam Initial Contact Letter – PTC – Refund Frozen	Premium tax credit discrepancy audits in which the IRS has frozen the taxpayer’s refund until the taxpayer can prove the correctness of the PTC. [IRM 21.3.1.6.2 (10-01-2024)]
CP06A	Exam Initial Contact Letter – PTC – No Refund Frozen	Premium tax credit discrepancy audits where the IRS has not frozen the refund. [IRM 21.3.1.6.2 (10-01-2024)]
2194	Alternative Minimum Tax Proposal Letter	Processed tax returns identified as taxpayers who are liable for the AMT but have not completed or attached Form 6251, Alternative Minimum Tax – Individuals. Taxpayers will initially receive Letter 12C and Letter 2194 will be issued if the taxpayer does not respond in order to assess the AMT. Form 4549 is included; this form proposes the AMT. [IRM 4.19.15.8.1 (2-1-2022)]

Discretionary Mail Audit Contact Letters

Notice #	Title	Used for:
566-B	Service Center Initial Contact Letter/30 Day Combo Letter (Examination by Mail)	IRS audit notification letter with identified issues that are under audit, not including EITC. The letter also proposes changes to the return shown on IRS Forms 4549 and 886-A. Also serves as a 30-day letter if taxpayer does not respond. [IRM 4.19.15.25.4 (2-1-2022)]
566-S	Initial Contact Letter (Examination by Mail)	IRS audit notification letter with identified issues under audit and request for information, including EITC. The letter may also propose changes to the return as shown on IRS Forms 4549 and 886-A. [IRM 4.19.15.25.4 (2-1-2022)]

Mail Audit Response Letters

Notice #	Title	Used for:
692	Request for Consideration of Additional Findings	Taxpayer replies to a 30-day letter where an audit report was issued, and additional information is needed. [IRM 4.19.13.11.1 at (3) (09-16-2024)]
3500/3501	Interim Letter to Correspondence from Taxpayer/Second Interim Letter	Issued by IRS when additional time is needed (usually 30-45 days) to review a taxpayer’s response. [IRM 4.19.13.12 (4-6-2022)]
555	Notification of Findings Based on Taxpayer’s Recent Data Re: Tax Liability	Taxpayer replies after the 90-day letter is issued. [IRM 4.19.13.11.1(09-16-2024)]

Mail Audit Determination and Assessment Notices

Notice #	Title	Used for:
525	General 30-day Letter	Includes Examination Report (Form 4549 with Form 886-A) and provides right to appeal within 30-days to IRS Independent Office of Appeals. [IRM 4.19.11.1 (12-22-2023)]
590/3581	No Change Final Letter	Final closing letter for no change cases with no adjustments. [IRM 4.10.8.3.1 at (4) (4-10-2023) and IRM 4.19.13.30 (8-4-2022)]
987	Agreed Income Tax Change	Letter that Informs taxpayer that the IRS has accepted, after review, their agreed changes to the return(s). [IRM 4.10.8.2.3.1 at (4) (4-10-2023)]
1156	Change/No Change Final Letter	Final closing letter for no change with adjustment cases. [IRM 4.10.8.3.2 at (5) (4-10-2023)]
2685	Repetitive Audit Letter	Audit being stopped due to repetitive audit. [IRM 4.10.2.13.2 at (2b) (2-11-2016)]
1024	Return Accepted as Filed (IRS decides not to audit)	IRS closed audit (surveyed) after contacting the taxpayer but before the records were reviewed (i.e., audit did not take place). [IRM 4.10.2.13.2 at (3a) (2-11-2016) and IRM 4.10.2.5.1 (9-9-2019)]
5153 Series	Examination Report Transmittal – Statute < 240 Days	Letter used to transmit a proposed agreed report or to notify the taxpayer that additional time is needed on the statute for Appeals to consider their case if it is unagreed. [IRM 4.10.8.12.1 (4-10-2023)]
3219	Statutory Notice of Deficiency	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus the penalties and interest, that he or she owes. This letter also advises the taxpayer of the right to appeal to the U.S. Tax Court. [IRM 4.19.10.4 (1-1-2024)]
21/22E	Changes to Your Return from an Audit	Balance due from the audit adjustment. [IRM 3.14.1.6.18.1.1 (1-1-2015)]

IRS Correspondence Exam Contact Information

The IRS has both W&I and SB/SE Correspondence Examination units. In general, most W&I mail audits involve refund hold and questionable refund cases, largely dealing with refundable credit issues. SB/SE does more discretionary mail audits and looks at issues such as itemized deductions and Schedule C expenses.

The ten Correspondence Exam units are as follows, with their associated contact information. [IRM 4.19.19.16 (1-3-2023)]

Wage & Investment (W&I) Campuses
IRS – Correspondence Examination – Andover, MA 310 Lowell Street Stop 854 Andover, MA 01810	Phone: (866) 897-0177 Fax: (855) 233-8560 Hours: 8AM-8PM, local time
IRS – Correspondence Examination – Kansas City Exam P-3 Stop 4100 Kansas City, MO 64999-0040	Phone: (866) 897-0177 Fax: (855) 648-6646 Hours: 8AM-8PM, local time
IRS – Correspondence Examination – Atlanta, GA 4800 Buford Hwy. Stop 22-B Chamblee, GA 39901	Phone: (866) 897-0177 Fax: (855) 216-0924 Hours: 8AM-8PM, local time
IRS – Correspondence Examination – Austin, TX 3651 S. IH 35 Stop 4103 AUSC Austin, TX 73301	Phone: (866) 897-0177 Fax: (855) 235-6791 Hours: 8AM-8PM, local time
IRS – Correspondence Examination – Fresno, CA PO Box 12067 Stop 82 Fresno, CA 93776	Phone: (866) 897-0177 Fax: (855) 233-8481 Hours: 8AM-8PM, local time
Small Business/Self Employed (SB/SE) Campuses
IRS – Correspondence Examination – Brookhaven Campus P.O. Box 9002 Holtsville, NY 11742 OR Stop 613 1040 Waverly Ave. Holtsville, NY 11742	Phone: (866) 897-0161 Fax: (855) 234-2608 Hours: 6AM-9PM, CST
IRS – Correspondence Examination – Cincinnati Campus P.O. Box 145574 Stop 82-G Cincinnati, OH 45250 OR Stop 82-G 7940 Kentucky Drive Florence, KY 41042-2915	Phone: (866) 897-0161 Fax: (855) 243-0512 Hours: 6AM-9PM, CST
IRS – Correspondence Examination – Memphis, TN P.O. Box 309011 AMC Stop 8236 Memphis, TN 38130-0911 OR Stop 82 5333 Getwell Rd. Memphis, TN 38130-0911	Phone: (866) 897-0161 Fax: (855) 235-6796 Hours: 6AM-9PM, CST
IRS – Correspondence Examination – Ogden, UT 1973 N. Rulon White Blvd. MS 4388 Ogden, UT 84404	Phone: (866) 897-0161 Fax: (855) 235-8845 Hours: 6AM-9PM, CST
IRS – Correspondence Examination – Philadelphia, PA MS 4-E08.141 Internal Revenue Service Philadelphia, PA 19255-0049	Phone: (866) 897-0161 International 1-267-941-1037 (Not Toll-Free) Fax: (855) 235-6788 International 1-267-466-1439 (Not Toll-Free) Hours: 6AM-9PM, CST

Note: Hours of operation are subject to change. Taxpayers contacting the W&I (866-897-0177) or SB/SE (866-897-0161) Correspondence Exam numbers will be routed to the next available tax examiner at an open IRS campus. For audit reconsideration addresses, taxpayers should contact the IRS Correspondence Exam unit and request the address to file the reconsideration. The IRS generally will route the request to the originating Exam unit and office. [IRM 4.13.1.3.2.1 (4-17-2024)]

Tax professional access to Correspondence Exam and taxpayer/tax professional appeals account resolution phone contacts appear below.

Hotline	Contact Information	Hours of Operation
Practitioner Priority Service (tax professionals only)	(866) 860-4259 Option #6: Correspondence Exam Unit	M-F, 7AM-7PM, local time. [ Practitioner Priority Service]
IRS Appeals Account Resolution	(559) 233-1267	Leave message, IRS responds in 24-48 hours [IRM 8.1.9.3 (02-26-2025) at (1a)]

Important Internal Revenue Manual Guidance for Mail Audits

The following IRM sections provide in-depth guidance on IRS mail audit procedures.

IRM	Topic	Information Provided
4.19.13	General Case Development and Resolution	Information on Examination general procedures and provides a reference for common issues and related items that might be found on tax returns.
4.19.14	EITC Revenue Protection Strategy (mail audits)	Procedures to contest Earned Income Tax Credit (EITC), related issues and other refundable credits.
4.19.15	Discretionary programs	Audit procedures on IRS discretionary mail audit inquiries.
4.19.19	Campus Examination Telephone Contacts	Information on contacting IRS Correspondence Exam Units.
4.19.20	Automated Correspondence Exam (ACE) Processing Overview	Letter and notice process for mail audits.
4.13	Central Reconsideration Unit	Criteria and procedures for audit reconsideration.
8.6.1	Appeals: Conference and Settlement Practices	How IRS conducts appeals conferences in audits.
8.6.4	Appeals: Reaching Settlement and Securing an Appeals Agreement Form	How the IRS settles audits in appeals and the agreement forms involved.

Steps to Resolving a Mail Audit Inquiry

The steps necessary to resolve a mail audit inquiry involve obtaining records to support items on the return, preparing the audit response, timely responding with an organized and complete response, and closing the mail audit – including resolving any disputes with the IRS.

Step	Action	Important
1	Request additional time, if needed, to respond timely to the IRS	Contact the IRS by phone if the response will be late to avoid receiving a premature deficiency notice.
2	Obtain information needed to respond to the mail audit	Obtain original return and supporting documentation for audit items.
3	Prepare organized response to the IRS	Complete the response: Prepare a cover letter outlining the response, findings, and request for appeal if the IRS disagrees. Address each audit issue separately. Attach the supporting documents and/or questionnaire responses. Contest penalties, if proposed.
4	Respond timely to IRS	Within 30-days. Fax response to IRS if needed. Use online IRS Secure Messaging, if available. Periodically check on status of response with IRS Correspondence Exam unit, by phone.
5	Finalize any adjustment(s) to the return	Review IRS adjustment(s), including penalties, to the filed return if any. Agreed responses: if the taxpayer agrees, prepare a corrected return to confirm IRS tax computation. If correct, sign the Form 4549 and return to the IRS. Unagreed responses: prepare dispute of each item and request IRS appeal if IRS disagrees. No-change determination: the audit is closed, and no further action is needed.
6	Resolve any disputes with IRS	Resolve disagreed items with tax examiner, the tax examiner’s manager, and/or the IRS Independent Office of Appeals.
7	Close audit case with IRS	Confirm case is closed: Agreed: CP22E and/or account transcript with additional tax assessment (TC 290). No-change: receipt of Letter 590/3581.
8	Make payment/set up collection alternative on remaining balance owed (if needed)	Can make payment with response or contact IRS with payment alternative after assessment notice (CP22E).
9	Review and correct any more recent years for possible similar items	If applicable, review more recently filed returns for accuracy and file an amended return if needed.

Mail Audit Response

A timely response is critical to resolving the audit. The response must provide the tax examiner with the information and explanations needed to resolve the selected audit issues. The response also needs to advocate the taxpayer’s position and request an appeal should the IRS disagree with the taxpayer’s position.

Response Section	Document	Tips
1	Response cover letter	Include in the letter: Identifying taxpayer information and subject of letter: Taxpayer(s) name and current address Taxpayer identification number(s) Form/Year Statement that the letter is a mail audit response. Audit results, per taxpayer: Summary of findings and taxpayer’s position for each audited issue. Attachments: Index/Explanation of documents and items included in the response. Penalties: If applicable, argument to contest penalties proposed. Appeals request: A request for an appeal with the IRS Independent Office of Appeals in case the IRS disagrees with the response. Statement as to accuracy: attestation as to the facts presented, signed by the taxpayer(s).
2	Copy of mail audit letter	Include as a reference for the assigned tax examiner.
3	Copy of original return as filed	Provide a copy of the original return for reference. Write “ORIGINAL RETURN COPY FOR INFORMATION ONLY: DO NOT PROCESS” at the top of the return so the IRS does not mistake it for a return to be processed.
4	Index and copy of supporting documentation	Includes copies of any receipts, records, IRS questionnaires, or other items to support the return items selected for audit.
5	Copy of any third-party authorization, if applicable	Include Form 2848, Power-of-Attorney and Declaration of Representative or Form 8821, Tax Information Authorization, if applicable.

Practice Tip: Taxpayers may not have every receipt or document needed to support their tax return position. In these cases, it is acceptable for the taxpayer to reconstruct the circumstances/receipts and/or provide an explanation for the missing items. The IRS allows oral testimony in resolving audit issues. The goal of the IRS audit is for the tax examiner to arrive at the “substantially correct tax liability” — which does not require substantiation of 100% of the receipts/documentation needed. [IRM 4.10.3.3.1 (2-26-2016)]

The IRS has two online portals that may allow the taxpayer to respond to a mail audit more effectively: the “Exam Reply” correspondence response tool at: www.irs.gov/examreply or, if invited via IRS notice 566-T, the Secure Messaging portal at https://www.irs.gov/help/welcome-to-secure-messaging (must have authenticated via ID.me). Taxpayers using the “Exam Reply” tool should include Form 14817, Reply Cover Sheet, when responding (if applicable).

Mail Audit Template Response Cover Letter

The response cover letter is critical to providing the taxpayer’s position on each audited issue area. The letter will need to provide an explanation of the information the taxpayer provides and any circumstances that the examiner should consider.

Most mail audit responses do not involve complex tax law interpretations. Most responses provide information and receipts related to the selected audit area(s). As such, the mail audit response letter primarily provides an index of information that the IRS needs to substantiate the taxpayer’s return items. Unusual circumstances and tax return positions can be documented and explained in the letter.

The mail audit response will be reviewed by an IRS tax examiner who is assigned the response. However, no one tax examiner is assigned the mail audit from beginning to end. It is important for the initial response to fully answer the IRS’s inquiry and request for information. Follow up responses are likely to be reviewed by a different tax examiner and may cause confusion if the tax examiner must interpret a prior response. Taxpayers who provide multiple responses should attach the prior response to assist the tax examiner in reviewing all of the taxpayer’s documents.

Taxpayers should also index and number each document sent to help the tax examiner understand the response. The taxpayer should keep a copy of the response for her records in case she needs to contact the tax examiner and further explain items in the response.

Audit Issue Response

The taxpayer should provide the following as part of the response letter for each selected audit issue:

• Audit issue: a description of the selected audit area and where it is reported on the return.
• Amount per return: the income, deduction, or credit amount reported on the return.
• Amount verified: the amount the taxpayer claims as being the correct amount on the return. This can include items verified and items requested to be accepted through oral testimony.
• Adjustment: the taxpayer’s interpretation, based on her position, of any adjustment that is needed for the audit issue.
• Explanation and taxpayer position: Explanation of the amount to be allowed. The taxpayer can also explain any tax law interpretation for the specific audit item, if needed.
• Supporting explanation/documentation: the taxpayer’s index and description of supporting documents provided.

The following chart illustrates a taxpayer response to a charitable deduction audit area:

The taxpayer would also provide the two attachments noted in the response to substantiate the deduction.

The taxpayer should always use the mail audit response to contest any proposed penalties. The taxpayer should provide the reasons for non-assertion of the accuracy penalty and any other proposed penalties. The taxpayer should also request an IRS appeal if the IRS disagrees. A request during the response will allow the taxpayer to timely request an appeal during the 30-day letter process should the IRS not agree/not process the response timely. [See our Accuracy Related Penalties Section for help with contesting accuracy penalties in an audit]

Template Response Letter

The response letter should include, at a minimum:

• Identifying taxpayer information and the subject of the letter:
  • Taxpayer(s) name and current address
  • Taxpayer identification number(s)
  • Form/Year
  • Statement that the letter is a mail audit response.
• Response to each issue: Summary of findings and taxpayer’s position for each audited issue.
• Attachments: Index/documents to support the response.
• Penalties: If applicable, argument to contest penalties proposed.
• Appeals request: A request for an appeal with the IRS Independent Office of Appeals in case the IRS disagrees with the response.
• Statement as to accuracy: Attestation as to the facts presented, signed by the taxpayer(s).

Mail Audit Reconsideration and Appeals

A taxpayer can appeal an audit determination if he disagrees and timely file a request for an appeal. If the taxpayer misses the appeal filing date or has new information that would lower the liability, he can request audit reconsideration (i.e., an audit “redo” on the disputed issues).

Practice Tip: The most likely scenario for audit reconsideration is when the taxpayer is non-responsive to the original mail audit correspondence. According to the Taxpayer Advocate’s office, approximately 1/3rd of mail audit determinations are assessed without the taxpayer’s response. In these cases, the taxpayer should request reconsideration in order to have the opportunity to contest the liability.

Audit Reconsideration

The IRS has the authority to abate the unpaid portion of the assessment of any tax or liability if it is deemed excessive in amount. [IRC §6404(a)]

An audit reconsideration is the process the IRS uses to reevaluate the results of a prior audit where additional tax was assessed and remains unpaid, or a tax credit was reversed. If the taxpayer disagrees with the original determination, he must provide new information for the audited issue(s) that was not previously considered during the original examination. [IRM 4.13.1.2 (12-16-2015)]

The IRS may allow reconsideration in the follow circumstances:

• The taxpayer did not respond to the audit.
• The taxpayer moved and did not receive the correspondence from the IRS.
• The taxpayer has new documentation pertinent to audited issue(s) to present.

[IRM 4.13.1.3 (12-16-2015)]

The IRS will not accept reconsideration requests when:

• The taxpayer has already been afforded an audit reconsideration request and did not provide any additional information with his/her current request that would change the audit results.
• The assessment was made as a result of a closing agreement entered into under IRC §7121 using Form 906, Closing Agreement on Final Determination Covering Specific Matters, or Form 866, Agreement as to Final Determination of Tax Liability, or some combination of the two forms.
• The assessment was made as a result of a compromise under IRC §7122. These agreements are final and conclusive. A final compromise determination can be identified on an account transcript by the posting of a TC 788.
• The assessment was made as the result of final TEFRA administrative proceedings (i.e., flow-through adjustment to a return).
• The assessment was made as a result of the taxpayer entering into a final agreement on Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment.
• The United States Tax Court has entered a decision that has become final, or a District Court or the United States Court of Federal Claims has rendered a judgment on the merits that has become final.

[IRM 4.13.1.8 (12-16-2015)]

In order to request an audit reconsideration:

• The taxpayer must have filed a tax return.
• The assessment remains unpaid or the Service has reversed tax credits that the taxpayer is disputing.
• The taxpayer must identify which adjustments he/she is disputing.
• The taxpayer must provide new additional information for the audited issue(s) not considered during the original examination.

[IRM 4.13.1.4 (12-16-2015)]

Taxpayers can also request reconsideration if there was an IRS computational or processing error(s) in assessing the tax.

To request reconsideration, the taxpayer should file the reconsideration request with the office that completed the audit. The taxpayer should send the following (copies only — do not send original documents):

• The original audit report (Form 4549) in question.
• The original tax return in question.
• A completed Form 12661 outlining the dispute and reasons for the dispute for each adjusted item.
• Documentation that supports the position held by the taxpayer.

Taxpayers can use Form 12661, Disputed Issue Verification, to dispute each item in the audit report. [IRM 4.13.1.3.3 (4-17-2024)]n

Practice Tip: The IRS will normally stop any collection activity upon receiving valid requests for reconsideration. Because audit reconsiderations may take a considerable amount of time to complete, taxpayers with unpaid balances should always monitor their collection hold status to make sure that the IRS does not restart collection prematurely. Taxpayers can contact the IRS directly and request a collection hold/status of collection at any time during the audit reconsideration process.

If the taxpayer’s reconsideration is allowed in full, the IRS will just adjust the taxpayer’s account and remove the liability. The taxpayer will not receive a corrected audit report (Form 4549) for signature. [IRM 4.13.1.4.7.2 (4-17-2024)]

If the taxpayer’s reconsideration is not allowed, in whole or in part, the taxpayer can appeal the findings. Taxpayers with audit reconsideration that are disallowed in full will receive IRS Letter 3339-C or 3340C (if they have an unpaid balance) or Letter 105C (if the balance is paid in full). Both letters allow the taxpayer to appeal the determination if part of the audit reconsideration claim is disallowed. [IRM 4.13.1.4.7.2 (4-17-2024))] On partial allowances, the taxpayer will be given a corrected audit report (Form 4549) to sign if they agree to the determination.

[Information on Audit Reconsideration can be found in IRS Publication 3598, Audit Reconsideration]

Mail Audit Appeals

Like CP2000s and face-to-face audits, the taxpayer is given the opportunity to appeal an IRS mail audit determination.

Practice Tip: As a practical remedy, adverse mail audit determinations are rarely contested in the IRS Independent Office of Appeals. [Taxpayer Advocate Service 2018 Annual Report to Congress, Most Serious Problem #8 – Correspondence Examinations] Tax assessments from individual mail audits averaged $15,610 in 2024. [IRS Data Book, 2024, Table 18] Taxpayers should always do a cost/benefit analysis to determine if the time, effort, and potential legal and professional fees to be incurred to argue the liability is worth the cost.

The first course of appeal is to request that the tax examiner’s manager participate in a manager conference. Taxpayers can contact the IRS Correspondence Exam unit directly and ask the tax examiner to have the manager review their case and contact them back directly.

If the manager conference is not successful in resolving the audit issues, the taxpayer is given two forms of appeals that do not require payment of the tax owed:

1. IRS Independent Office of Appeals upon receipt of the 30-day letter: the taxpayer must request an appeal with the IRS within 30 days of receipt of the 30-day letter.
   1. Practice Tip: Taxpayers should always timely respond to all mail audit requests with a request for appeal if the IRS disagrees with the response. If the taxpayer does not respond to a mail audit contact letter that includes Form 4549, Income Tax Examination Changes, the taxpayer’s original letter may serve as the 30-day letter. The next letter received will be the Statutory Notice of Deficiency which would preclude the taxpayer from requesting an appeal within the IRS.
2. U.S. Tax Court upon receipt of the Statutory Notice of Deficiency (90-day letter): the taxpayer can petition the U.S. Tax Court within 90 days of receipt of the SNOD.

If the taxpayer does not utilize the prepayment appeals options, she will need to either request audit reconsideration or follow claim for refund procedures.

The IRS Independent Office of Appeals settles most audit cases. The Appeals Office can take a fresh look at the taxpayer’s facts and argument and the IRS determination to make an independent determination. Based on their findings, appeals can sustain the tax examiners’ findings or change them. Appeals Officers can consider the “hazards of litigation” – that is, the risk that the IRS may lose in court on the issue. [IRM 8.6.1.7.2 (10-1-2016)] In audits, the analysis of the facts, legal interpretation, and evidence provided all are considered in determining hazards of litigation.

Appeals Request

When appealing a mail audit case, the taxpayer will need to outline the disagreement(s) with the IRS. The IRS provides Form 12203, Request for Appeals Review, if the amount of proposed tax, penalties, and interest is $25,000 or less. If the amount is above $25,000, the taxpayer should complete a custom protest that outlines the facts, law, argument, and taxpayer’s position. This template can be found in our templates and notices section.

In both the Form 12203 and the written protest letter, the taxpayer will need to include:

• Name, address, taxpayer identification number, and daytime phone number.
• Statement to appeal the IRS findings to the IRS Independent Office of Appeals.
• Copy of the 30-day letter showing proposed changes and findings of the IRS tax examiner.
• Tax period(s) and Form(s) involved.
• For each disputed change, an explanation of why the taxpayer disagrees with facts, law, and argument for each disagree position.
• Attestation statement and signature, under penalties of perjury.

Appeals Hearing and Settlement

Taxpayers protesting their audit determination can expect it to take several months before the IRS appeals hearing takes place. [GAO Report GAO-18-659, Opportunities Exist to Improve Monitoring and Transparency of Appeal Resolution Timeliness, September 2018] For mail audits, most appeals hearings are completed by phone with the IRS Appeals Officer (AO).

Practice Tip: If the taxpayer does not want to meet by phone, the taxpayer can request a face-to-face appeal to discuss the issues. Also, the taxpayer may be able to schedule a virtual conference with the Appeals Officer. The IRS has piloted virtual appeals conferences since 2017 and many of its Appeals Officers can now offer this option.

The appeals process prohibits ex parte communications between IRS personnel (i.e., the IRS auditor, the manager, and others involved in the audit) and IRS appeals. [IRM 4.2.7.3 (6-29-2017)] “Ex Parte Communication” is a communication between any Appeals employee and employees of other IRS functions without the taxpayer/representative having an opportunity to participate in the communication. [IRM 4.2.7.2 (6-29-2017)] Appeals may discuss the case with the Examination Unit employees in the presence of the taxpayer (or her representative) or with her consent. Appeals may also give the taxpayer the opportunity to participate in the discussion. [IRM 4.2.7.3 (6-29-2017)]

The prohibition on ex parte communication is required by the Restructuring and Reform Action of 1998. Ex parte communication does not include:

• Database inquiries (such as account inquiries, transcript requests and other similar inquiries conducted in an electronic environment). This exception does not apply to the administrative file, which may be in electronic format.
• Communication solely between or among Appeals employees.
• Communication with other governmental entities.
• Communication in which the taxpayer or representative is given an opportunity to participate.
• Communication about ministerial, administrative, or procedural matters.
• Communication as part of the Fast Track Settlement process.
• Non-case specific communication between Appeals and other IRS functions.

[IRM 4.2.7.2 at (4) (6-29-2017)]

In the appeals hearing, the Appeals Officer (AO) will first review the taxpayer’s protest. The AO will schedule the appeals conference with the taxpayer to discuss the facts, arguments, and law pertaining to the case. The AO will take an impartial view and decide on the case. The taxpayer will be given an opportunity to argue his side of the case. Ultimately, the AO and the taxpayer will attempt to settle the case or disagree and move forward to the Statutory Notice of Deficiency where the taxpayer can further appeal to the U.S. Tax Court.

There are four possible outcomes in IRS Appeals:

1. IRS agrees with taxpayer: in this case, the AO concedes all issues and provides the taxpayer a “no-change” letter.
2. IRS and taxpayer reach a “mutual settlement:” the taxpayer and the IRS settle each issue individually by concession or a percentage amount allowed per issue. In these cases the taxpayer and the IRS agree and execute a Form 4549, Income Tax Examination Changes, Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment, or Form 906/866, Closing Agreement on Final Determination Covering Specific Matters/Agreement as to Final Determination of Tax Liability, to settle the issues involved. If the changes are significant, the IRS often uses Form 870-AD for mutual settlements. [IRM 8.6.4.4.2 (6-16-2020) and 8.6.4.1.1 (6-16-2020)]
3. IRS and taxpayer reach a “split issue settlement:” the taxpayer and the IRS settle the issues based on a percentage of the issue allowed/disallowed or a percentage of the amount of the entire tax. In these cases, the IRS almost always executes Form 906, Closing Agreement on Final Determination Covering Specific Matters, or Form 866, Agreement as to Final Determination of Tax Liability, with the taxpayer to fully settle all issues involved. [IRM 8.6.4.2.2 (6-16-2020) and IRM 8.6.4.6 (10-15-2005)]
4. IRS disagrees with the taxpayer: the IRS does not want to settle based on the case facts or IRS position regarding the issues and moves forward to issue a Statutory Notice of Deficiency.

The IRS can also settle some issues with the taxpayer but disagree on other issues. In these cases, the IRS will execute Form 870-AD for the agreed issues. [IRM 8.6.4.5.1 (10-26-2007)]

By signing IRS Forms 4549 or 870, the taxpayer agrees to the immediate assessment of the tax and to give up the right to contest the findings in U.S. Tax Court. However, the taxpayer can dispute the tax using the claim for refund procedures.

IRS Forms 870-AD and 906/866 (Closing Agreements) are agreements that do not allow the taxpayer to further contest the appeals agreement. [IRM 8.6.4.4.3 (10-26-2007) and IRM 8.6.4.6 (10-15-2005)] These agreements are final, and the taxpayer waives the right to appeal the decisions in any venue. Both the IRS and taxpayers can use Form 870-AD or Form 906 to obtain finality of the audit. Both the IRS and the taxpayer are precluded from further re-opening the case unless there is fraud, malfeasance, concealment, or misrepresentation of a material fact. [IRC §7121(b) and IRM 8.6.4.6 (10-15-2005)]

Mediation is another IRS appeals option in office and field audits. However, IRS Fast Track Settlement (i.e., mediation) is not available for Correspondence Examination cases. [Revenue Procedure 2017-25, at Section 4.02(3) and IRS Publication 5022]

Mail Audit Example

Example: Jeff Smith received an IRS mail audit notice (Letter 566-S) for his 2017 return. The IRS selected gifts to charity and medical deductions on Schedule A as the selected audit issue areas.

Mr. Smith completes all steps to resolve his mail audit.

Step	Action	Important
1	Request additional time, if needed, to respond timely to the IRS	No additional time is needed. Taxpayer will respond within two weeks of the date of the letter.
2	Obtain information needed to respond to the mail audit	Taxpayer obtains original return and return workpapers used to list charitable contributions and medical expenses. Taxpayer complete worksheets and indexes attachments for the tax examiner.
3	Prepare organized response to IRS	Taxpayer prepares the response. The taxpayer has all necessary information to verify the deductions. Each issue is addressed in the letter with references to supporting documents. He copies original documents to send to the IRS to support his deductions. The taxpayer does not need to address penalties as no penalty is yet proposed. The taxpayer requests an appeal if the IRS disagrees with his findings and determination.
4	Respond timely to IRS	Taxpayer responds in 15 days. He keeps a copy of his response for his records and sends the voluminous response. He sends his response certified (return receipt) to the IRS to confirm receipt. The taxpayer calls the IRS Correspondence Exam unit in 21 days and confirms receipt.
5	Finalize any adjustment(s) to the return	The IRS provides a no-change determination when he contacts the IRS in six weeks for a status update.
6	Resolve any disputes with IRS	N/A
7	Close audit case with IRS	The taxpayer receives the official examination No-Change Letter 590 and the audit is closed.
8	Make payment/set up collection alternative on remaining balance owed (if needed)	N/A
9	Review and correct any more recent years for possible similar items	The taxpayer checks his 2018 return and makes sure he has documentation to support a future exam of large, unusual, and/or questionable items. No changes are warranted.

Mr. Smith responded with this letter and attached supporting documentation.

Mail Audit Process and Action Grid

The following grid outlines the mail audit notice stream and compliance activity. For each phase, the grid provides:

• What happens
• Common issues
• Timeframes
• Time to respond
• Request for additional time
• Letters/forms used
• Recommended actions

IRS OFFICE AND FIELD AUDITS

This section explains the office and field audit process and how-to successfully resolve office and field audits.

Topic	Covers
Overview of IRS Office and Field Examinations (Face-to-Face Audits)	Includes: Office and field audit overview. Scope, depth, and common issues in office and field audits. Other important office/field audit procedures and tips.
Office and Field Audit Letters/Notices, Publications, and Forms	Commonly issued office and field audit contact, response, and determination and assessment notices, plus common forms used in these audits.
Important Internal Revenue Manual (IRM) Guidance and Useful Websites	Parts of the IRS’s IRM and useful websites that assist in resolving face-to-face audits.
Office Audit Process	Includes the four stages of an office audit: Office audit step 1: statute of limitations review Office audit step 2: pre-audit analysis of the taxpayer and his return(s) Office audit step 3: fact finding and issue development Office audit step 4: resolving issues and closing the audit
Field Audit Process	Overview of the phases and special features of an IRS field audit.
Four Phases of an IRS Field Audit	Includes in-depth guidance and tips on the four phases of a field audit: Field audit phase 1: pre-audit analysis Field audit phase 2: the initial interview and appointment Field audit phase 3: issue development Field audit phase 4: issue resolution and closing the audit
Audit Appeals	How-to appeal an office/field audit determination.
Offer in Compromise — Doubt as to Liability (OIC-DATL)	How to contest an audit or CP2000 determination with an OIC-DATL.
Office/Field Audit Process and Action Grid	A detailed grid of the office/field audit process.
IRS Audit Technique Guides	A reference listing of all the IRS ATGs.

Other helpful sections:

Topic	Covers
Accuracy-Related Penalties	How to address accuracy penalties in an audit.
IRS Transcripts	How to obtain IRS transcripts needed in preparing for an IRS audit.

Key Highlights:

• IRS face-to-face audits (office and field audits) are rare. Office audits are conducted on individual taxpayers and are limited in scope. IRS field audits are conducted on the most complex taxpayers including high wealth individuals, small businesses, and other business and specialty taxpayers.
• In face-to-face audits, the IRS routinely examines the taxpayer’s finances for unreported income.
• IRS office audits are conducted at local IRS offices and follow a “checklist” format in reviewing income and selected audit areas.
• IRS field audits are the most comprehensive of IRS audits and take the longest time to complete. The IRS auditor (revenue agent) can expand the scope of the examination based on the findings during the audit.
• There are four distinct phases of a field audit: Preparation/Pre-Audit Analysis, the Initial Interview/Appointment, Fact Finding/Issue Development, and Resolving Issues/Closing the Audit.
• IRS office and field audits have the highest likelihood for disputes in which the taxpayer will appeal to the IRS Independent Office of Appeals.

Overview of IRS Office and Field Examinations (Face-to-Face Audits)

The most comprehensive IRS audits occur when the IRS conducts face-to-face examinations of taxpayers. In these cases, IRS auditors meet with the taxpayer and/or representative at an IRS location or at the taxpayer’s home or place of business. There are two types of face-to-face audits:

1. Office examinations: also referred to as a “desk audit,” “office audit,” or “checklist audit” that is conducted at an IRS office location by an IRS tax compliance officer (TCO), and
2. Field examinations: also referred to as a “field audit” where the audit is conducted by an IRS revenue agent (RA) in the field (i.e., at the taxpayer’s location).

Of the over 2.8 million individual return challenges by the IRS in 2024, only 2% were conducted by IRS face-to-face audits.

The IRS has limited resources to conduct office and field audits. IRS mail audits are conducted by IRS personnel in both the Wage and Investment (W&I) and Small Business/Self-Employed (SB/SE) divisions. Office and field audits on individual taxpayers are primarily conducted in the IRS SB/SE division that focuses on more complex taxpayers and transactions. The Large Business & International Division also conducts field audits, but primarily focuses on more complex, larger business entities and specialty taxpayers.

IRS Office Audits

In 2024, only 22% of all audits were office and field audits. [IRS Data Books, 2005-2024, Table 17 and Table 18]

In 2024, the IRS conducted 38,381 office audits. The change rate on these audits was 92.6%. The average of additional tax owed per return audited was $28,352. In 2024, the average office audit took 271 days, excluding any time for any appeal. [IRS FOIA Response 2025-00183, April 2025]

Office Audit Locations

IRS office audit locations are generally centered around the more populated cities in the United States. Currently, there are 175 office audit locations in the United States.

IRS Field Audits

IRS field audits are usually reserved for the most complex taxpayers, including business and specialty taxpayers (trusts, employee plans, exempt organizations, etc.). IRS field auditors (revenue agents) and audits have been declining, until 2024 when they increased by 35%. However, in 2025, early cutbacks by the IRS affected the revenue agent staffing significantly, with over 3,600 agents exiting in early 2025. [TIGTA Report 2025-IE-R017, May 2, 2025, Snapshot Report: IRS Workforce Reductions as of March 2025]

[IRS Data Books, 2010-2024, Table 18]

However, the average amount owed in face-to-face audits, which include field audits, is significant. The average individual office and field audit results for 2020-2024 is shown below: [IRS FOIA Response 2025-00183, April 2025]

Scope, Depth, and Issues in IRS Office and Field Audits

Whereas mail audits are generally focused on simpler tax issues, such as refundable credits and itemized deductions, the office and field audit issues for individuals can include more complicated areas.

Office and field audits usually take much longer to complete and involve more in-depth audit procedures.

The scope, depth and common issues of office and field audits (compared to mail audits) are illustrated below.

	Mail Audit	Office Audit	Field Audit
Location	By mail (IRS campus).	At local IRS office.	Taxpayer place of business, home, or representative’s office.
Timing	Starts immediately after filing, especially for refund hold scenarios.	Generally, 5-12 months after return filing as audit must be completed within 26 months from return filing date.	Generally, 5-18 months after return filing as audit must be completed within 26 months from return filing date.
Taxpayers	Individuals (infrequently used in limited scope exams for business/other taxpayers).	Individuals (infrequently used in limited scope exams for business/other taxpayers).	All taxpayers.
IRS auditor	Responses are examined by next available tax examiner. No one tax examiner is assigned to the audit.	Tax compliance officer is specifically assigned to audit.	Revenue agent is specifically assigned to audit.
Auditor authority	Limited to issues/year. Can escalate audit to office/field exam.	Can expand into additional issues/years, but only with Manager approval. Can escalate audit to field audit.	Extensive. Can expand scope of exam to other issues/years/forms.
Scope/issues	2-4 issues; refund hold issues (EITC, ACTC, PTC).	1-5 pre-selected issues classified by experienced IRS auditor.	Examines most complex taxpayers and issues. Comprehensive scope, including related entities and taxpayers. Scope determined by Revenue agent.
Income audit techniques	Matching only or related to credit.	Limited interview and financial status audit.	Comprehensive, looks to related returns and taxpayers.
Related/prior/subsequent year return examination	Very limited. May pick up subsequent year on related issue.	Limited.	Yes. Agent must review related returns and entities. Likely to audit related entities.
Penalties that can be imposed	Accuracy	All	All, most fraud cases originate from field audits.
Duration	1-6 months	1-9 months	1-26 months

Office and Field Audit Letters/Notices, Publications, and Forms

Office/field audit notification/contact letters are described below.

Notice #	Title	Used for:
2202	Initial Contact Letter – Firm Set Appointment Letter	Office Exams: Initial contact letter used to schedule a firm initial appointment date and time for individual taxpayers. [IRM 4.10.2.8.1.1 (11-4-2016)]
3572	SB/SE Office Exam Call-Back Appointment Letter	Office Exam: sent to request that individual taxpayers call to schedule an initial appointment. Allows the taxpayers 14 calendar days to respond. [IRM 4.10.2.8.1.1 (11-4-2016)]
2205	Initial Contact Letter, Field Audit	Field Exams: Initial contact letter, does not list the issues being examined. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.2 (9-9-2019)]
2205-A	Initial Contact Letter, Field Audit	Field Exams: Initial contact letter, lists the issues being examined. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.2 (9-9-2019)]
3253	Taxpayer Appointment Confirmation Letter (Letter 3254 is used to send to taxpayer’s representative)	After the initial telephone conversation, revenue agents must issue a letter to confirm the initial appointment. [IRM 4.10.2.8.1.2 (9-9-2019)]
5968	Prior or Subsequent Year Pickup	Letter to notify the taxpayer that the scope of the examination is expanded to include another tax period(s). [IRM 4.10.2.7.1.2 at (4) (09-29-2022)]

Office/field audit adjustment letters are described below.

915	Examination Report Transmittal	Office Exams: used to issue both agreed and unagreed reports. [IRM 4.10.8.4.1.1 (3-25-2021)]
1912	Follow-Up Letter Transmitting Examination Reports	Office Exams: when taxpayer does not respond within 15 days of Letter 915. [IRM 4.10.8.4.1.1 (3-25-2021)]
525	General 30-Day Letter	Letter from IRS auditor proposing adjustments to the return. Includes the audit report (Form 4549), explanation of adjustments, and tax computation. The taxpayer must request an appeal within 30-days with the auditor if the taxpayer disagrees and wants to appeal within the IRS.
950	30-Day Letter	Field Exam: 30-day letter transmitting audit results where there was a change to the return. This notice allows the taxpayer the right to appeal. [IRM 4.10.8.12.1 (4-10-2023)]

Office/field audit closing letters are described below.

531	Statutory Notice of Deficiency (90-Day Letter)	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of appeal rights to the U.S. Tax Court. [IRM 4.8.9.9.3 (7-9-2013)]
4121	Agreed Examination Report Transmittal – Field Exam	Letter to a taxpayer with audit report when he has indicated agreement to all adjustments. [IRM 4.10.8.3.3 (3-25-2021)]
915	Examination Report Transmittal – Office Exam	Letter to a taxpayer with audit report for agreed and unagreed office audits. [IRM 4.10.8.4.1.1 (3-25-2021)]
590	No Change Final Letter	Final closing letter for no change cases with no adjustments. [IRM 4.10.8.3.5 (4-10-2023)]
987	Agreed Income Tax Change	Final closing letter on an audit with an agreed tax change. [IRM 4.10.8.2.3.1 (4-10-2023)]
1156	Change/No Change Final Letter	Final closing letter for no change with adjustment cases. [IRM 4.10.8.3.2 (4-10-2023)]
21/22E	Adjustment Made to Account	Balance due from audit adjustment. [IRM 3.14.1.6.18.1.2 (1-1-2015)]

IRS Publications for use in office/field audits are shown below.

Publication	Description
1	Your Rights as a Taxpayer
5	Your Appeal Rights and How to Prepare a Protest If you Don’t Agree
556	Examination of Returns, Appeal Rights, and Claims for Refund
1035	Extending the Tax Assessment Period
1219-A	Notice of Potential Third-Party Contact
3498	The Examination Process
3498-A	The Examination Process (Audits by Mail)
3598	Audit Reconsideration
4167	Appeals: Introduction to Alternative Dispute Resolution
4227	Appeals
5146	Employment Tax Returns: Examinations and Appeal Rights

IRS Forms used in office/field audits are listed below.

Form	Title
4549	Income Tax Examination Changes
4549-A	Unagreed Report – Income Tax Examination Changes
4549-E	Income Tax Discrepancy Adjustments
886-A	Explanations of Items (accompanies a Form 4549, Income Tax Examination Changes)
870	Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment
872	Consent to Extend the Time to Assess Tax
870-AD	Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment
866	Agreement as to Final Determination of Tax Liability
906	Closing Agreement on Final Determination Covering Specific Matters
4564	Information Document Request (IDR)
4822	Statement of Annual Estimated Personal and Family Expenses
5701	Notice of Proposed Adjustments (used in more complex Field Audits)
12661	Disputed Issue Verification
12203	Request for Appeals Review (Small Case Request – entire amount of additional tax and penalty proposed for each tax period is $25,000 or less)

Important Internal Revenue Manual (IRM) Guidance and Useful Websites

The Internal Revenue Manual (IRM), Part 4 (IRS Examinations) and Part 8 (Appeals) provide extensive procedural guidance on IRS audits. Specific helpful sections include the following:

IRM	Topic	Information Provided
4.10 (.1-.10, and .20)	Examination of Returns	Information and procedures on how the IRS conducts office and field audits.
4.11.55	Power-of Attorney Rights and Responsibilities in an audit	Taxpayer representation rights in an audit.
8.6.1	Appeals: Conference and Settlement Practices	How the IRS conducts appeals conferences in audits.
8.6.4	Appeals: Reaching Settlement and Securing an Appeals Agreement Form	How the IRS settles audits in appeals and the agreement forms involved.
9.5	Criminal Investigation: Investigative Process	Methods used to determine unreported income in fraud cases.
20.1.5	Return Related Penalties	Information on how the IRS determines penalties to be assessed in an audit.
25.1	Fraud Handbook	IRS procedures for examining tax returns for fraud.
4.11.57 and 25.27	Third-Party Contacts	Procedures used by IRS auditors in making third-party contacts in an audit.

The following websites provide helpful tools to use in an IRS audit.

Website	URL	Description
IRS Audit Technique Guides	https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs	ATGs help IRS examiners during audits by providing insight into issues and accounting methods unique to specific industries. ATGs explain industry-specific examination techniques and include common, as well as unique industry issues, business practices, and terminology. Guidance is also provided on the examination of income, interview techniques, and evaluation of evidence.
Bizstats business statistics and financial ratios (IRS auditors use this site for financial ratios)	Bizstats.com	Offers free business statistics and financial ratios, by type of entity (sole proprietor, corporation, partnership), by industry (retail, beverage store, construction, etc.) and by amount of gross receipts.
Prior website pages	Archive.org	Using the “Wayback Machine,” the IRS auditor can review the taxpayer’s historical website pages for the years under audit for any potential issues.
Bureau of Labor Statistics Data	https://www.bls.gov/	Used to estimate household expenses when determining if the taxpayer has enough income in the year.

Office Audit Process

Office audits are conducted by tax compliance officers (TCO) who are trained to conduct limited scope audits on predefined issues. TCOs follow a checklist process to conduct the audit. The issues in the audit are pre-defined by experienced IRS personnel trained in identifying returns and issues with the highest probability of errors. The TCO follows the pre-defined audit plan from beginning to end and has limited ability to expand or contract audit scope without the approval of a manager.

Attached to the return, is a Form 6754, Examination Classification Checksheet, that lists the audit areas for the TCO.

Office Audit Step 1: Statute of Limitations Review

Once assigned the audit, the TCO will proceed through the audit plan. The first step is to consider if there is enough time on the assessment statute of limitations for the TCO to audit the taxpayer and make an adjustment before the ASED.

Normally, TCOs will not start an audit if there is less than 12 months left on the assessment statute unless there are extraordinary circumstances in which the TCO concurs. [IRM 4.10.2.2.1 at (3) (9-9-2019)]

Practice Tip: It is rare for the IRS to audit a return with less than 12 months remaining before the ASED. IRS requests to extend the ASED should be approached with caution. The main reasons taxpayers agree to extend the ASED is to avoid a premature closing of an audit by the IRS auditor and to allow the taxpayer additional time to take the case to IRS appeals. The IRS will only allow the unagreed case to be sent to IRS Appeals if there is more than one year remaining before the ASED (measured when the case is actually received in IRS appeals). [IRM 25.6.22.2.1 at (3b) (11-17-2021)] Taxpayer who sign a Consent to Extend the Time to Assess Tax (Form 872) should first align with the IRS auditor and the manager on the timelines and scope of the examination. In short, the taxpayer needs to have line-of-sight to the end of the audit before executing a Form 872. In addition, the taxpayer should only provide the IRS the minimum amount of time needed when executing a statute extension. Consideration should be given to provide only short extensions to control the scope, depth, and timing of the audit.

Summary of Audit Phase #1: Preliminary Statute of Limitations Review

Audit step	Audit actions/IRM References
Determine Statute of Limitations	Review the return documents for the proper assessment of the statute of limitations. An examiner cannot initiate an examination on any return with less than 12 months remaining on the statute of limitations for assessment, without consideration of the 26/27-month examination cycle and prior managerial approval. [IRM 4.10.2.2.1 at (3) (9-9-2019)]
If needed, obtain a Consent to Extend the Statute of Limitations	There must be at least 365 days remaining on the statute of limitations when the case is received by Appeals. [IRM 25.6.22.2.1 at (3b) (11-17-2021)] If within 12 months of the ASED, a Form 872, Consent to Extend the Time to Assess Tax, will be requested if the taxpayer wants to proceed to Appeals.

The IRS TCO audit plan starts with this review:

Office Audit Step 2: Pre-Audit Analysis of the Taxpayer and His/Her Return(s)

The TCO will normally spend up to one hour on a non-business return (1.5 hours on a business return) planning the examination and getting familiar with the taxpayer, the issues under examination, and ultimately, setting the appointment with the taxpayer. [IRM 4.10.2.3 at (2) (9-29-2022)]

The TCO will review IRS records on prior audit history, income reported to the IRS, and prior tax return filings in developing questions and information requests. The TCO will likely do an internet search of the taxpayer for any items of potential unreported activity.

The TCO will begin to review the return for any unreported income. The TCO will take two steps in the pre-audit phase:

• Determine if specific income sources were excluded on the return: an initial review of the information returns filed with the IRS (W-2s, 1099s) will be undertaken to determine if they are reported accurately on the return, and
• Complete a preliminary financial status analysis: a preliminary review, based on information available on the tax return and the taxpayer’s location, of the taxpayer’s income and probable living expenses to determine if the taxpayer has sufficient funds reported on her return to support her lifestyle. The IRS can estimate the taxpayer’s living expenses using Bureau of Labor Statistics data for normal annual expenses that would represent the actual costs to maintain the household. [IRM 4.10.4.6.1.3 (5-27-2011)]

The TCO will perform a “T-account” analysis as part of the initial and ongoing financial status analysis to determine unreported income. [IRM 4.10.4.3.2 at (3) (8-9-2011)] The T-account analysis examines the taxpayer’s incoming (left side of the “T” account) and outgoing (right side of the “T” account) funds. The IRS auditor initially uses information on the return, information returns (W-2s, 1099s, etc.) reported to the IRS, and other public record information to determine sources of incoming and outgoing funds. The IRS auditor can also use Bureau of Labor Statistical information and/or request the taxpayer to complete Form 4822, Statement of Annual Estimated Personal and Family Expenses, for the year under audit to determine outgoing funds for household expenses. [IRM 4.10.4.6.1.2 (8-9-2011)] If the taxpayer’s outgoing funds exceed the taxpayer’s incoming funds by $10,000 or more (called a “material imbalance”), the IRS will likely conduct further in-depth analysis and audit steps to determine if the taxpayer has unreported income.

This T-account template is provided in our templates and notices section.

The TCO will do a further review for individual business returns encompassing the following: [IRM 4.10.2.3.2 (9-29-2022)]

• A public records search for property transactions,
• A search of the internet and a review of taxpayer websites for e-commerce activity and business name,
• Analyze business ratios for possible unreported income or overstated expenses, and.
• Review any currency transaction reports (CTRs)

The TCO will use these preliminary insights in the issue development phase to determine if the taxpayer has unreported income.

At the end of the pre-contact analysis phase, the TCO will send an appointment letter (Letter 2202 or 3572, etc.) with an initial Form 4564, Information Document Request (“IDR”), to the taxpayer (and to the Power-of-Attorney, if applicable). Both the letter and the IDR will provide the taxpayer insight into the main issues of the audit.

Practice Tip: The letter and the IDR do not explicitly state that “unreported income” is an issue in the audit. Taxpayers should always be prepared before the audit to reconcile their income to the return. Taxpayers should do a “T-account” analysis and explain how they were able to pay for expenses that appear to be in excess of the income reported (i.e., loans, cash on hand, gifts, inheritances, etc.). The IRS will ask about all nontaxable sources of income in the initial interview to get clear, early testimony from the taxpayer about their sources of income — both taxable and nontaxable — that support any future unreported income issue.

The goal of the audit is to determine the “substantially correct” tax liability. [IRM 4.10.2.7.1.1 (2-11-2016)] At the end of the pre-contact phase, the TCO may determine that the taxpayer does not warrant examination. [IRM 4.10.2.4 (2-11-2016)] The TCO can close the audit before or after taxpayer contact. However, once the examination begins, the TCO must issue an audit determination letter if the TCO has reviewed any books and records for the taxpayer. [IRM 4.10.2.5.1 at (3) (9-9-2019)]

Summary of Audit Phase #2: Pre-Contact Analysis of the Return

Audit step	Audit actions/IRM References
Conduct in-depth pre-contact analysis [IRM 4.10.2.3 (9-29-2022)]	Review the Classification Worksheet. [IRM 4.10.2.3 (9-29-2022)] Review the return for any large, unusual or questionable items. [IRM 4.10.2.3.1 (9-29-2022)] Review prior audit(s) and results. [IRM 4.10.2.3.1 (9-29-2022)] Review internal IRS data on the taxpayer (transcripts, assets, income sources, internet research, etc.). [IRM 4.10.2.3 (9-29-2022)] Determine if all required tax returns have been filed. [IRM 4.10.2.3.3 (9-9-2019)] Review financial condition of the taxpayer and consider collectibility in setting scope. [IRM 4.10.2.4.1 (9-9-2019) and IRM 4.20.1.2.1 (10-19-2023)]
Review prior/subsequent year returns for potential issues	Review prior/subsequent year returns [IRM 4.10.2.7.1.2 (9-29-2022)] and any related returns [IRM 4.10.2.7.1.5 (9-9-2019)] for issues and inconsistencies.
Reconcile the return to the information statements filed	Review W-2s/1099s and other information returns filed on the taxpayer’s identification number(s). Reconcile the information returns to the tax return. [IRM 4.10.2.3.2 (9-29-2022) and IRM 4.10.4.3.2 (8-9-2011)]
Compare year-to-year variances	Analyze return data on file with the IRS to highlight large, unusual, or questionable year-to-year variances for further examination in the audit. [IRM 4.10.2.7 (2-11-2016)]
Complete preliminary financial status review for unreported income	Conduct T-account analysis (reported incoming funds v. outgoing funds) for material imbalances and the potential for unreported income. [IRM 4.10.4.3.2 at (3) (8-9-2011)] Note: a material imbalance is where the financial status review reveals a potential understatement of income of $10,000 or more. [IRM 4.10.4.3.6.3 (5-27-2011)] If the preliminary income review (“income probe”) reveals a material imbalance, the TCO will conduct an in-depth examination for potential sources of unreported income. The TCO can also contact third parties when investigating unreported income.
Determine scope/depth of the audit	Manager must concur if the audit scope is modified from the pre-defined issues. [IRM 4.10.2.3 at (2) (9-29-2022)] Perform research (i.e., review ATGs and IRM, etc.) for specific guidance on auditing the taxpayer and specific issues. [IRM 4.10.2.3.1 at (1c) (9-29-2022)]
Prepare initial interview questions	Prepare an outline of specific questions to ask based on: Pre-audit findings Prepared issues Possible unreported sources of income [IRM 4.10.2.7.4 (2-11-2016)]
Review third-party authorizations on file	Review for existing third parties authorized by the taxpayer (Form 2848 for a Power of Attorney and Declaration of Representative or Form 8821 for a Tax Information Authorization) for audit year(s) – and coordinate appointment with the authorized person. [IRM 4.10.2.8.1 (9-29-2022)] Note: only a Power-of-Attorney (usually a CPA, attorney, or an enrolled agent) can represent the taxpayer in an audit. Any third-party can be authorized by the taxpayer to receive information via Form 8821. However, the Form 8821 does not allow the third party to represent the taxpayer. In practice, the IRS mainly provides information, including notice copies, to Form 8821 authorized third parties.
Review for unique issues that may need additional resources or referrals for assistance	Determine whether to involve specialists (attorneys, international examiners, valuation experts, computer audit specialists, etc.) to aid with developing and resolving significant complex issues. [IRM 4.10.2.7.5 (9-9-2019)] Refer complex issues and taxpayers to Field Exam. [IRM 4.10.2.7.1.5 (9-9-2019)]
Contact taxpayer (or POA if applicable) and make appointment	Letter is sent to the taxpayer with a Form 4564 (IDR). If POA (2848) or TIA (8821) is received, the TCO must schedule an appointment with the POA and coordinate with the authorized third-party. [IRM 4.10.2.9.1 at (5) (9-9-2019)] The taxpayer is sent the taxpayer rights and privacy act statement. [Pub 1 and Notice 609]

IRS TCO audit plan:

Office Audit Step 3: Fact Finding and Issue Development

This phase of the office audit process begins with an interview of the taxpayer.

The taxpayer’s representative can attend in place of or accompany the taxpayer to the interview. IRC §7521(c) states that when a taxpayer has executed a written power of attorney (Form 2848) for a third party to represent the taxpayer in any interview, the IRS cannot require the taxpayer’s presence without issuance of a summons. However, the representative must commit to having first-hand knowledge of the taxpayer’s business operations and affirm that the examiner can rely on the information provided. In addition, the representative should agree to provide follow-up information timely if he or she is unable to provide responses to questions at the initial interview. [IRM 4.10.2.9.1 (9-9-2019)]

The representative cannot impede the examination by just participating as a go-between the taxpayer and the IRS. In these cases, and in cases where the taxpayer’s representative is unable or unwilling to respond to the IRS, the TCO may request to interview the taxpayer directly. If the POA refuses, the IRS may attempt to issue an administrative summons to interview the taxpayer. [IRM 4.11.55.3.1 (5-29-2018)]

Practice Tip: Preparing for the audit is the most important part of the audit. If the taxpayer and/or the representative is not able to anticipate the IRS auditor’s questions and provide quality answers, the taxpayer should expect a longer audit. In addition, if the POA cannot answer the IRS auditor’s questions, the IRS may issue an administrative summons to speak directly to the taxpayer. However, because many taxpayers do not understand or cannot articulate a tax position, it is not advisable for taxpayers to represent themselves in face-to-face examinations. Preparing the tax professional to be knowledgeable in the examination is critical to effective representation.

The initial office audit interview appointment typically takes two hours. During the initial meeting, the taxpayer will provide the documents and explanations requested in the appointment letter and Information Document Requests. Subsequent meetings may be needed, or documents submitted, if the TCO asks additional questions or the taxpayer does not have all information for the meeting.

Most of the actions in this phase consist of the taxpayer providing information and explanations to the TCO to resolve potential issues in the examination. If the TCO believes that there is a change that needs to be made to the return, he will propose one or more “adjustments” in the resolving issues/closing the audit phase.

If the TCO finds issues in the year under exam that are also present in other years or finds related issues for other related returns, the TCO may expand the audit to the other years or related returns, depending on whether there is enough time on the assessment statute (usually more than one year remaining before the ASED).

When developing issues, the TCO will likely follow a checklist to make sure that he is properly considering all the facts and law related to the issue.

During the initial interview, the TCO will continue the income probe. The TCO will inquire about available cash on hand at the beginning and end of the year in question. The TCO will use a checklist to ask the taxpayer about all sources of income (taxable and nontaxable) for the year under audit.

The TCO will also inquire into bartering income activity and foreign transactions. The TCO will want the taxpayer to provide details of all sources of income for the year if the TCO suspects unreported income from the initial income analysis in the pre-audit stage (i.e., specific unreported income from W-2/1099 analysis and/or a material imbalance from the initial T-account analysis).

In addition, the TCO may use worksheets to examine specific issues on the return. For example, the TCO may use the following worksheet to examine deducted taxes.

The TCO will also develop facts to support the imposition of penalties. TCOs will gather evidence and testimony to support accuracy penalties. The TCO will also follow up on any indications of fraud.

The TCO will analyze and gather evidence to determine whether the taxpayer made a reasonable attempt to comply with requirements. [IRM 4.10.6.2.1 (5-14-1999)]

The TCO will consider:

• The taxpayer’s history of noncompliance.
• The failure to keep adequate books and records.
• The taxpayer’s explanation of unreported or understated income or overstated deductions or credits.
• Whether the taxpayer tried to conceal the true nature of a questioned deduction.
• The taxpayer’s level of effort to report the correct amount of tax.
• The experience, knowledge, and sophistication of the taxpayer.
• Whether the taxpayer could have and should have reasonably relied on information statements.
• If the taxpayer had reasonable reliance on advice from a tax advisor, the IRS, or from other credible advisors.
• If the taxpayer was ignorant of the law or was unaware of a tax law change.
• Whether the error was an isolated math error or transcription error.
• Whether the taxpayer adequately disclosed the disputed or reportable transaction.

The TCO will decide whether the taxpayer made a reasonable attempt to comply in assessing the accuracy penalty and will support his position with specific facts and circumstances. The TCO must have agreement from his manager before the penalty is proposed. [IRC §6751(b)(1) and IRM 20.1.5.2.3 (02-28-2025)]

In developing a theory of fraud, the TCO will gather testimony, facts, and evidence in the audit to support the proposal of civil and criminal fraud. [IRM 20.1.5.16.1 (4-22-2019)]

The major difference between civil and criminal fraud is the degree of proof required to establish fraud on the part of the taxpayer. Criminal fraud requires sufficient evidence to prove guilt beyond a reasonable doubt. Civil fraud requires clear and convincing evidence of fraud with intent to evade tax. [IRM 20.1.5.16.4 (02-28-2025)]

In most face-to-face audits, most fraud cases stem from unreported income, such as:

• The omission of specific items of income, entire sources of income or substantial amounts of income.
• Unexplained increases in net worth.
• Unexplained bank deposits.

Many IRS fraud penalties are also pursued in audit where there are substantial adjustments in multiple years.

IRS auditors look for “badges of fraud” during audits. Badges of fraud are indicators that fraud may be present. Some of the badges considered by IRS auditors include:

• Concealment of income sources.
• False deductions, exemptions, or credits.
• Numerous errors, all in favor of the taxpayer.
• Large discrepancies for actual v. reported deductions.
• Dealing in cash.
• Fictitious records, including more than one set of books and records.
• Verbal or written misrepresentations concerning material facts in an examination.
• Attempts to hinder the investigation by failing or refusing to answer questions, canceling appointments, or refusing to supply records.
• Employee testimony about irregular business practices.
• Failure to keep or destruction of books and records.
• Transfers of assets for purpose of concealment.

[IRM 4.10.6.2.2 (5-14-1999)]

IRS auditors do not have the authority to solely assess the civil fraud penalty or pursue the taxpayer for criminal tax fraud. Determination of a civil fraud penalty is a shared responsibility of the examiner, the examiner’s group manager, and the Fraud Technical Advisor (FTA). [IRM 20.1.5.16.2 at (10) (8-31-2021)] The IRS Criminal Investigation Division will decide whether to accept or reject the case for pursuit of criminal penalties. [IRM 25.1.3.4 (6-10-2021)] Taxpayers and their representatives who suspect that the IRS is pursuing fraud in the audit should consider involving legal counsel as there is no communication privilege between non-attorneys and the taxpayer in criminal tax matters. [For an in-depth discussion on privileged communication, see IRM 4.11.55.3.3 (04-20-2010)]

Practice Tip: Obviously, taxpayers who believe that they could be or are subject to fraud penalties should involve legal counsel as early as possible. Non-attorneys do not have a communication privilege with the taxpayer regarding criminal tax matters. [IRC §7525(a)(2)]

Summary of Audit Phase #3: Fact Finding and Issue Development

Audit step	Audit actions/IRM References
Conduct initial interview	TCO conducts face-to-face interview from outline of questions prepared in the pre-audit phase. [IRM 4.10.3.3 (05-03-2023)] Asks questions to identify all potential sources of income and other filing requirements (related returns, household employees, foreign bank accounts, cash transactions, etc.). Explains exam process, taxpayer rights and appeals procedures. Auditor follows an outline to guide interview. [IRM 4.10.3.4.2 (3-1-2003) and IRM 4.10.3.4.6 (5-3-2023)]
Conduct minimum income review for unreported income at the initial interview (income probe)	Responses to information return unreported income discrepancies. [IRM 4.10.4.3.6.2 (8-9-2011)] Identify all sources of income – both taxable and non-taxable. [IRM 4.10.4.3.3.2 (8-9-2011)] Questions covering bartering, foreign accounts and transactions, business records, operations, and controls, e-commerce activity, and other areas. Elevate issues of $10,000 or more unreported income to manager to consider fraud development in the audit. [IRM 4.10.4.4.1 (5-27-2011)]
Refocus audit based on initial findings	Perform risk analysis and focus in on likely adjustments – based on early findings and income probe, should the auditor expand/contract exam. [IRM 4.10.4.3.1 (8-9-2011)]
Expand exam to other returns/years	Analyze and decide whether to audit prior/subsequent years. [IRM 4.10.5.3 (6-13-2017)] Analyze and decide whether to audit related returns. [IRM 4.10.5.4 (6-01-2010)]
Consider development of penalties	Pursue applicable fraud indicators. [IRM 4.10.6.2.2 (5-14-1999)] Pursue applicable accuracy penalties. [IRM 4.10.6.2.1 (5-14-1999)] Pursue applicable information return penalties (1099/8300, etc.). [IRM 20.1.7 (4-5-2024)] Pursue applicable return preparer penalties. [IRM 4.10.6.8.2 (5-14-1999)] Pursue applicable other miscellaneous penalties. [IRM 20.1.5 (8-31-2021)]

IRS TCO audit plan:

The issue development phase is usually the longest phase of an audit — especially if the IRS is proposing adjustments to the return. Taxpayers can reduce audit time, issues examined, and the imposition of penalties by properly preparing for the audit and the auditor’s actions, and be able to provide knowledgeable explanations and evidence to support their position. Taxpayers who react in face-to-face examinations likely will face longer audit durations and unagreed issues involving a misinterpretation of the facts.

Office Audit Step 4: Resolving Issues and Closing the Audit

The final phase of face-to-face audits is issue resolution and case closing. The auditor will indicate if the audit resulted in no adjustments to the return (a “no-change” audit result). The auditor’s decision is subject to manager approval.

If there is a change to the return, the final phase starts when the IRS auditor proposes adjustments to the return. IRS auditors can propose adjustments as the audit progresses or propose them at the end of the audit. In is advisable for the taxpayer to encourage open communications with the auditor to resolve issues early in the examination. Formal agreement on the issues will be made at the end of the audit.

In an office audit, the TCO will propose adjustments using Form 4549, Income Tax Examination Changes. [IRM 4.10.8.4.1 (3-25-2021)] This form — also referred to as the “audit report” (also known as the “Revenue Agent Report,” or “RAR,”’ for the Form 4549 used by revenue agents in field audits) — will list the adjustments proposed for each year, with the proposed tax and penalties due. The report may or may not list the interest on the balance owed. In office audits, TCOs often provide an audit report at the end of the initial interview and whenever additional information is received by the taxpayer. [IRM 4.10.7.5.2 (9-12-2022)] In field audits, the revenue agent (field auditor) will likely wait until the end of the examination to issue the audit report. [IRM 4.10.7.5.3 (9-12-2022)]

Attached to the report is the explanation of the auditor’s adjustments. The explanations is provided on Form 886-A, Explanation of Items. [IRM 4.10.8.12.4 (3-25-2021)] Any new tax computation elements will be on additional Forms 886-A.

The Form 886-A is important in understanding the auditor’s position. For each issue, including penalties, the auditor will outline the amount of proposed adjustment to the return, by year, and his understanding of the facts, applicable law, and position. If the taxpayer has provided a prior position on the issue, the auditor will address why he disagrees with the taxpayer’s position. The IRS’s explanation of each issue concludes with a section on why the IRS is proposing an adjustment.

The taxpayer is given an opportunity to agree to the audit adjustments. If the taxpayer agrees, he can sign the Form 4549 and the deficiency will move to immediate assessment, bypassing the pre-payment appeal rights to IRS Appeals and the U.S. Tax Court. If the taxpayer changes his mind after agreement, the taxpayer can file a claim for refund. This can happen if the taxpayer finds new information or law emerges that would change the outcome of the audit within the statute of limitations. Taxpayers can consent to the assessment of additional tax by signing Form 4549, and Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. If the agreed amount is $250,000 or more, the IRS will usually request an original signature. However, all agreements, regardless of dollar amount, can be accepted via fax. [IRM 4.10.1.3.7 (7-12-2022)]

Practice Tip: The COVID-19 pandemic has expanded the IRS’s ability to accept e-signatures on audit documents. Taxpayers should check with the IRS auditor to see if an e-sign document or fax signature is acceptable.

If the taxpayer disagrees, in whole or in part, he can attempt to resolve the examination issues with the TCO’s manager. In office audits, if the taxpayer requests that his case be sent to IRS appeals, the IRS manager is required to contact the taxpayer or his representative to attempt to resolve the case. [IRM 4.10.7.5.5 at (2a) (9-12-2022)] In field audits, the IRS manager will always contact the taxpayer or his representative to resolve unagreed issues. [IRM 4.10.7.5.5 at (2b) (9-12-2022)] The manager cannot review the case based on Appeal’s standards (i.e., hazards of litigation) but can resolve disputes regarding the auditor’s understanding of the facts and law as it pertains to the taxpayer’s situation.

Practice Tip: In many face-to-face audits, the facts and/or law are rarely explicitly clear on unagreed issues. In these cases, the taxpayer should always attempt to resolve the audit by requesting the manager to intervene. IRS managers can take a second look and may agree to concede certain issues. One area that managers often reconsider is the imposition of accuracy penalties where the decision of the auditor appears to be subjective and not well developed.

The IRS auditor and manager will advise the taxpayer of appeal rights (IRS Publication 5), which may include mediation. [IRM 4.10.7.5.5 (9-12-2022)] Most taxpayers who disagree, request an IRS appeals hearing with the IRS Independent Office of Appeals to resolve their unagreed issues. To request an appeal with the IRS Independent Office of Appeals, the taxpayer will provide a written protest within 30-days of receipt of the 30-day letter (IRS Letter 915 in office audits and Letter 950 in field audits). [IRM 4.10.8.12.1 at (8) (4-10-2023)] The taxpayer can use Form 12203, Request for Appeals Review, for discrepancies when the entire amount of additional tax and penalty proposed for each tax period is $25,000 or less. [IRM 4.10.8.12.9.3 at (3) (4-10-2023)]

If the total amount for any tax period is more than $25,000 (tax and penalties), the taxpayer must submit a formal written protest that contains the following:

1. Taxpayer’s name and address, and a daytime telephone number.
2. A statement affirming that the taxpayer wants to appeal the IRS’s findings to the Appeals Office.
3. A copy of the letter showing the proposed changes and findings the taxpayer disagrees with.
4. The tax periods or years involved.
5. A list of the changes that the taxpayer disagrees with, and the reason for disagreement.
6. The facts supporting the taxpayer’s position on any unagreed issue.
7. The law or authority, if any, on which the taxpayer is relying.
8. Signature and attestation to the facts presented in the protest, stating that it is true, under the penalties of perjury as follows:

“Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and complete.”

[IRM 4.10.8.12.9.3 at (3b) (4-10-2023) and IRS Publication 5]

Taxpayers can provide a cover letter and complete the Request for Appeals Review of Unagreed IRS Examination Results template as an attachment.

Summary of Audit Phase #4: Issue Resolution and Case Closing

Audit step	Audit actions/IRM References
Propose issues	Discuss taxpayer rights. [Pub 3498, Pub 5, IRM 4.10.8.2.3.2 (9-13-2019) and IRM 4.10.7.5.1 (9-12-2022)] Review audit report Forms 4549/886-A and Letter 915 (30-day letter). [IRM 4.10.8.2.3 (3-25-2021)] Explain adjustments and seek agreement with taxpayer. [IRM 4.10.7.5 (9-12-2022)]
Agreed case procedures	Secure agreements from taxpayer and solicit payment. [IRM 4.10.8.12.9.2 (3-25-2021) and IRM 4.10.8.2.4.1 (9-13-2019)] Coordinate with IRS collections if amount owed is $100,000 or more. [IRM 4.20.1.3.3 (6-23-2020)] Note: Interest and the failure to pay penalty will begin to accrue if the tax is not paid within 21 days from the date of the first notice (ten business days if the amount for which such notice and demand is made equals or exceeds $100,000). [IRM 4.20.1.3.1 (10-19-2023)] Secure levy information if not paid or installment agreement not secured. [IRM 4.20.1.3.2 (10-19-2023)]
Unagreed case procedures	Conduct Group Manager conference. [IRM 4.10.7.5.5 (9-12-2022)] Consider partial agreements. [IRM 4.10.7.5.5 at (1) (9-12-2022)] Offer appeals options. [IRM 4.10.7.5.5 at (4) (9-12-2022)] Close case within 20 days after disagreement. [IRM 4.10.8.12.9.3.1 (9-13-2019)] Solicit statute extension if less than 365 days until the ASED. [IRM 4.10.8.12 at (5) (4-10-2023)] Review taxpayer’s rebuttal and forward protest to IRS Independent Office of Appeals. [IRM 4.10.8.12.9.3 (4-10-2023)]
No-change procedures	Prepare no-change letter, subject to manager approval. [IRM 4.10.8.3.1 (4-10-2023)] Note: The auditor may issue Letter 3401, No-Change Report Transmittal Letter, to indicate a preliminary no-change determination, subject to manager approval. The Letter 590 indicates that a final no-change was approved by the IRS manager. [IRM 4.10.8.3.1 (4-10-2023) and IRM 4.10.8.2.3.1 (4-10-2023)]

IRS TCO audit plan:

If the taxpayer agrees, he will receive a letter CP22E which will show the adjustment to the return based on the examination results. Taxpayers who do not respond or do not appeal the proposed adjustments will be subject to assessment. In order to correct the assessments in non-respond and non-appeal cases, the taxpayer must ask for audit reconsideration, request an Offer in Compromise—Doubt as to Liability, or follow claim for refund procedures.

Taxpayer who do not agree and who timely appeal the determination to the IRS Independent Office of Appeals will have their case heard by an Appeals Officer.

Field Audit Process

A field audit is conducted by an IRS revenue agent (“RA”) who is authorized to examine the most complex tax returns. An RA may have specialized knowledge in an issue area or industry. RAs are assigned to the Small Business/Self-Employed (SB/SE) or Large Business and International (LB&I) Divisions.

SB/SE agents are more common and conduct most field audits of individual and small business taxpayers. [IRS Data Books, 2014-2024, Table 34]

The RA has greater independence to determine the scope, depth, and audit techniques used in a field audit than IRS auditors have in mail and office audits.

Field Audit Phases

Field audits follow a similar, but more in-depth, four-phase process than an office audit:

1. Pre-audit analysis — the revenue agent reviews information about the taxpayer and determines what issues to audit. The RA sends an appointment letter to the taxpayer with an initial request for information (Information Document Request, or IDR, IRS Form 4564)
2. The initial interview and appointment — the beginning of the audit where the taxpayer interviews the taxpayer or their representative. The RA also begins to review the taxpayer’s records which had been requested with the initial IDR and audit letter.
3. Issue Development — the RA reviews the taxpayer’s books and records and other information to determine if there are adjustments to the return and penalties to be proposed. In large and mid-sized businesses, the RA may propose issues as they arise and issue the taxpayer a Form 5701, Notice of Proposed Adjustment, for each issue completed during this phase. The Form 5701 will allow the RA and the taxpayer to agree/disagree or provide additional information earlier in the audit.
4. Issue Resolution and Closing the Audit — the proposal of adjustments to the return and resolution of the issues. If there are adjustments to the return to which the taxpayer disagrees, the taxpayer may appeal the RA’s determination.

Field audits are usually more comprehensive than office audits, involve more complex issues, and often take much longer to complete than mail or office audits.

Special Features of a Field Audit

A field audit is the most comprehensive of all IRS audits and has the following special characteristics:

• Revenue agent has more time and decision-making authority: the RA will spend more time than the auditor in an office audit and have more independence on the scope and depth of the examination. The RA selects the issues to audit and determines the audit techniques to be used in developing issues. [IRM 4.10.2.7.1.2 at (2b) (9-29-2022)]
• Targets more complex individual taxpayers: most individual taxpayer field audits likely involve taxpayers with higher wealth, international features, investors, small business owners, and/or have multiple related entities. [IRM 4.19.11.4.3.1 (12-22-2023)]
• Likely to involve business and/or specialty taxpayers: field audit resources are generally targeted to small, mid-size and large businesses, employers, specialty taxpayers (trusts, employee plans, exempt organizations, etc.). [IRM 4.19.11.4.3.1 (12-22-2023)]
• More resources are available to the RA: the RA can involve specialists to help develop issues (i.e., valuation experts for deductions, computer audit specialists to examine electronic records, etc.). [IRM 4.10.3.4.3.3 (5-3-2023)]
• More complex issues and in-depth audit techniques: field audits involve issues that require more in-depth tax law knowledge and fact-gathering techniques that are more time-consuming and technical.
• Unreported income is always anaudit issue: the RA must determine if there is unreported income and have more extensive minimum income audit requirements, depending on the type of entity. [IRM 4.10.4.3.1 (8-9-2011)] The RA may also conduct in-depth analyses including use of indirect methods to estimate unreported income. [IRM 4.10.4.6 (5-27-2011)]
• Multiple taxpayer interactions: the RA is a “field” auditor. For businesses, the RA will likely want to tour the taxpayer’s business premises. [IRM 4.10.4.3.3.3 (5-27-2011)] The RA will also want to interview knowledgeable individuals (accountants, bookkeepers, and others) in developing issues. [IRM 4.10.3.4.3 (2-26-2016)] The RA will also want to have all audit appointments in the field rather than at the RA’s office.
• Prior/subsequent year and related return audits: the RA checks filing requirements for prior/subsequent year and related returns and if the RA discovers that the taxpayer has not complied with a filing requirement or determines audit potential exists in another filed return, the examiner may expand the examination scope. [IRM 4.10.2.7.1.5 (9-9-2019)]
• Issue development can take some time: the RA is likely to issue multiple iterations of Information Document Requests (IDRs) in developing issues. [IRM 4.10.4.1 (8-9-2011)]
• Tax preparer and accountant involvement: in business audits, the RA will request tax return reconciliation workpapers to help reconcile the accounting records with the return. [IRM 4.10.4.3.3.5 (8-9-2011) and IRM 4.10.20.2 (5-4-2017)] An RA can sometimes request audit and tax accrual workpapers from the taxpayer. The RA’s use of audit or tax accrual workpapers is limited and taxpayers and their representatives should review IRM 4.10.20.3 (12-8-2020) and related law before releasing audit and tax accrual workpapers to the IRS.
• Computer records are analyzed: since 2011, the IRS has routinely requested small business electronic accounting records at the beginning of a business audit. The IRS will request accounting software backup data files for the year(s) under audit. The IRS can use the file to test the integrity and reliability of the accounting records and to produce reports that assist in requesting documents in the examination. [IRS.gov: FAQs on Use of Electronic Accounting Software Records]
• More likely to contact other sources of information: the RA may request records and testimony from third parties. [IRM 4.11.57.1.2 (5-26-2017)] Beginning on August 15, 2019, IRS employees may not contact any third party without first providing reasonable notice to the taxpayer. The Taxpayer First Act amended IRC §7602(c)(1) to require that the notice inform the taxpayer that the IRS intends to contact third parties, specify the period (not greater than one year) during which the contact will occur, and provide the notice at least 45 days before the beginning of the period to make third-party contacts. [IRM 4.11.57.1.1 (7-20-2020)] The IRS uses the Letter 3164 series to notify the taxpayer of a potential third-party contact. [IRM 25.27.1.3.1 (4-7-2021)]
• More likely to use a summons to gather information: in most audits, the IRS auditor is trying to resolve issues by obtaining information directly from the taxpayer. However, the IRS may summon taxpayer records and testimony in situations where the taxpayer is not cooperative in providing records, testimony, or information or when taxpayer records are in the possession of third parties. [IRM 25.5.5.2 (3-16-2022)] Taxpayers who are faced with an IRS summons (Form 2039) should review IRM 25.5.3 (8-2-2019) and IRM 25.5.5 (3-16-2022) to understand their rights and the summons process.
• More disagreements: field audits have a much higher appeal rate than other types of audits. Taxpayers should always be prepared to appeal their disagreements to the IRS Independent Office of Appeals. [Taxpayer Advocate Service, 2018 Annual Report to Congress, Most Serious Problem #9, Field Examination]

• Expensive audits: field audits can result in large deficiencies. [FOIA Response 2025-000183, April 2025]

However, field audits also have a higher no-change rate as compared to other IRS audits. In 2024, the no-change rate for field audits was 21.2%, higher than the office or correspondence exam no-change rates. [IRS FOIA Response 2025-00183, April 2025]

Four Phases of an IRS Field Audit

In all face-to-face audits, it is important for the taxpayer to be prepared for each phase of the examination. To be prepared, the taxpayer will need to fully understand her tax reporting and positions taken on the return as well as records that support the tax reporting.

Field Audit Phase 1: Pre-audit Analysis

The IRS begins the pre-audit analysis phase when the RA is assigned to the taxpayer and her return for examination. For the taxpayer, the pre-audit analysis phase starts upon receipt of the audit appointment letter. Once the appointment letter is received, the taxpayer will need to start preparing for the audit.

Practice Tip: In order to streamline the audit and obtain the best outcome, it is very important for the taxpayer to properly prepare for the audit in the pre-audit analysis phase. Taxpayers who are prepared and able to answer the auditor’s questions are more likely to get through the audit quickly and to avoid unnecessary audit steps. The taxpayer will need to anticipate the IRS auditor’s audit actions and be able to prove that she has reported the substantially correct tax liability. In field audits, most taxpayers should engage a tax professional who is experienced in dealing with IRS field audits to obtain the best outcome in the least amount of time.

To prepare for the audit, the taxpayer should perform the actions listed below.

Summary of Field Audit Phase 1: Pre-Audit Analysis

Action	Preparation Steps and Tips
Engage professional help	Seek professional tax advice as representation in the audit. Secure a Form 2848 for the representative covering multiple years (year(s) under audit, prior seven years, future three years). For business returns, request the accountant/internal bookkeeper to provide an overview of the accounting system and to reconcile the books and records to the tax return.
Contact the agent directly and confirm audit logistics	Confirm appointment — get extension if more time is needed to prepare for the audit. Request and confirm place of appointment. Send POA to agent, if applicable. If appointment is to be at POA’s office, schedule tour of premises with RA. Ask RA to explain scope and answer any questions on information needed as specified on the initial IDR. Ask the RA about any compliance concerns and to specify the most important issues in order to focus preparation on addressing these issues and concerns early in the audit.
Perform due diligence on the taxpayer, their business (if applicable), and their return	Review taxpayer background (occupation, licenses, education, assets, liabilities, financial history, etc.) and public information (property records, civil and criminal judgments, etc.). Perform trend analysis on prior/subsequent/current year returns and review for large variances. Review IRS compliance history, including filing history, past audit results, and notices received. Complete any missing filing requirements prior to the initial interview. Review the return for large, unusual and questionable items that are or will be of interest to the IRS. Do a web search and social media review on the taxpayer and their business and prepare for any questions related to tax issues. Review business website (now and in the past using archive.org “wayback machine”) for e-commerce activity, lines of business, and other items of interest in the audit. Conduct a business ratio analysis using statistics on Bizstats.com. Be prepared to explain unusual variances from normal ratios.
Reconcile income to the return	Be prepared for the IRS to thoroughly examine the taxpayer for unreported income: Reconcile IRS sources (W-2s, 1099s, etc.) reported to the IRS (wage and income transcripts under all taxpayer TINs) to the return. Include 1099-MISC and 1099-K receipts for businesses. Analyze bank deposits and reconcile taxable and nontaxable sources and be prepared to explain discrepancies. Conduct a T-account analysis and be prepared to explain material imbalances. Reconcile e-commerce activity, including reconciling credit and debit card transactions to the books/records.
Prepare business records for the audit	Document and be able to provide an accounting system overview. Prepare a bank accounts overview and explanation of transactions in each account. Reconcile business records to the return and review tax return reconciliation workpapers. Be prepared to document how the return was constructed. Document how the accounting system works.
Prepare for any specialized IRS audit procedures	Analyze industry issues (use ATGs if available) and perform applicable audit checks outlined in the ATG. Familiarize and align communication with IRS perspective and terminology used in the ATG.
Set up an audit tracking file	Organize a system to track IDRs, proposed issues, and audit contacts. The taxpayer should always keep a complete copy of all information sent to the IRS. The taxpayer should also keep a case chronology of all audit events and contacts during the audit.
Answering the Initial IDR	Prepare written responses to agent for all IDR requests to clarify the facts. Organize documents according to IDR sequence, with explanations, if needed. Consider sending “most important” issue response to RA prior to the initial interview if the documents/explanation are clear and support the taxpayer’s position. Organize the response and be ready for the initial interview and appointment.
Prepare for the initial interview	Decide whether taxpayer or only tax professional will attend. Prepare detailed overview of taxpayer and his/her business (if applicable). Prepare chronology of financial and business activity for year, highlighting sources of income throughout the year and major financial events.

The IRS revenue agent’s audit plan for this phase includes:

The revenue agent must complete minimum steps to verify the taxpayer’s income. The minimum audit steps depend on the type of taxpayer being audited.

See below for non-business returns (no Schedule C or F). [IRM 4.10.4.3.2 (8-9-2011)]

Income Verification Audit Technique

	Goal	IRM for More Information
Information return (W-2, 1099, etc.) reconciliation for specific omitted items	Ensure all business and/or investment activities reflected on the information return document(s) are properly accounted for on the tax return.	IRM 4.10.4.3.6.2 (08-09-2011)
Taxpayer interview	Review for possible sources of income, other than those reported, and accumulated funds. This would include potential bartering activities questions.	IRM 4.10.4.3.3.2 (08-09-2011)
T-account financial status analysis for material imbalance	Identify indications of a potential understatement of taxable income (i.e., a material imbalance).	IRM 4.10.4.3.3.1 (08-09-2011)
Bank deposit analysis if the T-account analysis has a gross imbalance	Identify deposits that may be taxable income and identify sources of taxable income not otherwise disclosed by the taxpayer.	IRM 4.10.4.3.2 at (4) (8-9-2011) and IRM 4.10.4.3.3.1 (8-9-2011)
Bank analysis when there is evidence of potential unreported business income (unreported 1099s for business income)	Identify deposits that may be taxable income and identify sources of taxable income not otherwise disclosed by the taxpayer.	IRM 4.10.4.3.2.1 at (2) (05-27-2011)

See below for individual business returns (Schedule C, F, and corporate and partnership entities). [IRM 4.10.4.3.3 (8-9-2011)]

Income Verification Audit Technique

	Goal	IRM for More Information
Information return (W-2. 1099) reconciliation	Ensure all business and/or investment activities reflected on the IRP document are properly accounted for on the tax return.	IRM 4.10.4.3.2 (08-09-2011)
T-account financial status analysis for material imbalance	Estimate whether reported income is sufficient to support the taxpayer’s financial activities	IRM 4.10.4.3.3.1 (08-09-2011)
Taxpayer interview	Gain an understanding of the taxpayer’s financial history, identify sources of nontaxable funds, and establish the amount of currency the taxpayer has on hand.	IRM 4.10.4.3.3.2 (08-09-2011)
Tour the business site and review of the Internet website	Gain familiarity with the taxpayer’s operations and internal controls and identify potential sources of unreported income.	IRM 4.10.4.3.3.3 (05-27-2011);IRM 4.10.4.3.7.2 (5-27-2011)
Internal control review	Determine the reliability of the books and records (including electronic books and records), identify high risk issues, and determine the depth of the examination of income.	IRM 4.10.4.3.3.4 (08-09-2011)
Reconciliation of income from tax return to books and records	Reconcile the income reported on the tax return to the taxpayer’s books and records.	IRM 4.10.4.3.3.5 (08-09-2011)
Gross receipts test to source documents	Test the gross receipts by tying the original source documents to the books.	IRM 4.10.4.3.3.6 (08-09-2011)
Bank deposit analysis	Evaluate the accuracy of gross receipts reported on the tax return.	IRM 4.10.4.3.3.7 (08-09-2011)
Business Ratio analysis	Evaluate the reasonableness of the taxpayer’s business operations and identify issues needing a more thorough examination.	IRM 4.10.4.3.3.8 (08-09-2011)
E-commerce and internet activity	Determine if there is Internet use and e-commerce income activity.	IRM 4.10.4.3.7.1 (08-09-2011)

If the audit involves a corporation or other business entity, the IRS will also complete a balance sheet analysis [IRM 4.10.4.3.4.1 (8-9-2011)] and reconciliation of Schedules M-1, M-2, and M-3. [IRM 4.10.4.3.4.2 (8-9-2011)] In closely held business entity audits, the IRS will also evaluate the shareholders or partners for potential unreported income, especially in transactions with the business under audit. [IRM 4.10.4.3.4.3 (8-9-2011)]

In a field audit, it is very important for the taxpayer to closely analyze income. In preparing for the audit, the taxpayer, at a minimum, should conduct the following five points of analysis prior to the audit:

1. Reconcile IRS wage and income statements to the return.
2. Perform a T-account analysis and reconcile any material imbalances.
3. Perform a bank deposit analysis: reconcile all bank deposits to income and non-taxable sources.
4. Reconcile credit and debit card transactions to the books and records: trace gross receipts collected from third-party merchant accounts, including payment processors (i.e., PayPal, Venmo, etc.) to the books and records.
5. Reconcile accounting records balances to the business return, including walking through the steps to show how the return was constructed.

If the IRS suspects unreported income, the RA may use an indirect method (“financial status audit technique”) to determine the tax liability based on the amount of unreported income. These techniques rely on indirect evidence of income to propose unreported income. IRC §7602(e) allows the IRS to use financial status or economic reality examination techniques to determine the existence of unreported income of any taxpayer if there is a reasonable indication that there is a likelihood of unreported income. Indirect methods are appropriate when the taxpayer’s books and records are missing, incomplete, or irregularities are identified. Indirect methods are also appropriate when the financial status analysis (T-account) indicates a material imbalance of cash flows after consideration of other adjustments identified during the audit.

Indirect audit techniques include the following: [IRM 4.10.4.2.9 (8-9-2011)]

Indirect Method	Description	IRM for More Information
Source and Application of Funds Method	Determines unreported income through an analysis of a taxpayer’s cash flows and comparison of all known expenditures with all known receipts for the period. Used when excess expense items (applications) over income items (sources) represent an understatement of taxable income.	IRM 4.10.4.6.3 (9-11-2007)
Bank Deposit and Cash Expenditures Method	Identifies unreported income through a detailed, in-depth analysis of all bank deposits, cancelled checks, currency transactions, and electronic debits, transfers, and credits to bank accounts and identification of the taxpayer’s cash expenditures. Used when it is apparent that the taxpayer does two things when she receives money: deposits it or spends it. The method computes income by showing what happened to a taxpayer’s funds. Not good for cash intensive businesses.	IRM 4.10.4.6.4 (5-27-2011)
Markup Method	Reconstructs income based on the use of percentages or ratios considered typical for the business under examination in order to make the actual determination of tax liability. It consists of an analysis of sales and/or cost of sales and the application of an appropriate percentage of markup to arrive at the taxpayer’s gross receipts. Used when inventories are a material income producing factor and cost of goods sold can be verified from a few vendors. Most effective when applied to businesses whose inventory is regulated or where purchases can be readily broken down in groups with the same percentage of markup.	IRM 4.10.4.6.5 (8-9-2011)
Unit and Volume Method	Determines gross receipts by applying the sales price to the volume of business done by the taxpayer. Used when the number of sales units and price per unit are known.	IRM 4.10.4.6.6 (8-9-2011)
Net Worth Method	Measures increases in a taxpayer’s net worth during a taxable year, adjusted for nondeductible expenditures and nontaxable income, must result from taxable income. This method requires a complete reconstruction of the taxpayer’s financial history, since the government must account for all assets, liabilities, nondeductible expenditures, and nontaxable sources of funds during the relevant period. Used when there are multiple years under audit and there are no reliable books and records.	IRM 4.10.4.6.7 (6-1-2004)

A helpful resource in planning for the audit is to review all applicable IRS audit technique guides (ATGs). The auditor uses ATGs to prepare for the audit and to guide him in developing issues.

There are audit technique guides available for many audit issues and industries. For each industry, the guide contains valuable information on pre-determined IRS audit issues, books and records the IRS expects, questions and documents the IRS will request in the audit, income and issue analysis techniques, and the IRS position as it relates to common issues.

Field Audit Phase 2: Initial Interview and Appointment

The field audit begins with the RA’s first field visit. In the first field visit, the RA will want to conduct an initial interview with the taxpayer and/or those knowledgeable about the taxpayer’s finances and business, if applicable. If the taxpayer is going to use a representative in the examination, the representative (Power-of-Attorney or “POA”) should attend the initial interview. If it is decided that the taxpayer will not be interviewed, the representative must obtain the full knowledge of the taxpayer’s financial affairs, tax return positions, and business operations. The POA will need to acquire this extensive knowledge in the pre-audit phase. If the POA simply acts as a conduit between the IRS and the taxpayer, the agent may request to speak directly with the taxpayer or potentially issue a summons to the taxpayer in order to expedite the examination process.

The RA will schedule the first appointment at the taxpayer’s place of business (or the POA’s office, if agreed) for as much time needed to conduct the initial interview, obtain an understanding of the taxpayer’s finances and business operations (if applicable), and review the initial records provided.

In the initial interview and appointment, the taxpayer should take the following actions:

Summary of Field Audit Phase 2: Initial Interview and Appointment

Action	Initial Interview/Appointment Steps and Tips
Conduct informative initial interview	Provide overview of taxpayer and her finances. Provide overview of the taxpayer’s business finances and operations. Answer the agent’s questions. If the answer is not known, it is best to inform the agent that it is necessary to research the answer and follow-up with a reply. Provide the internal control audit trail and documentation to state that all income is reported on the return. Address questions about audited issues and provide explanations and evidence to the agent to review and corroborate statements.
Provide business information	Conduct tour of premises. Provide accounting records and explanation of accounting system. Provide backup file of electronic accounting records. Provide tax reconciliation workpapers and explanation of how records tie to return.
Provide initial IDR response	Provide IDR responses, in writing. Provide copies of documents and retain a copy of exact response.
Confirm next steps	Set the place of examination and provide future accommodations for agent (premises, POA office). Agree/schedule future interviews needed. Agree on audit communications and IDR response time. Meet with agent at end of initial appointment for a status check and any change to scope of audit. Document meeting and considering sharing it with RA.

The IRS revenue agent’s audit plan for this phase includes:

At the end of this phase, the RA can make several decisions:

• To close the examination no-change: the information provided is sufficient to determine that the taxpayer is compliant, and no further examination activity is warranted.
• To request more information: determine that more information is needed and provide the taxpayer with an Information Document Request(s) (Form 4564).
• To expand/contract the examination: pursue more issues and/or years or limit the scope based on early findings. If badges of fraud are present, the agent may discuss pursing civil and/or criminal fraud with the manager.
• Propose initial issues: finalize any fully developed issues and issue the taxpayer a proposed adjustment (verbally or with Form 5701).

Field Audit Phase 3: Issue Development

This phase is often the longest in duration and may involve multiple iterations of IDR issuances and responses. In this phase, the IRS will either pursue or drop issues. The taxpayer will have to clearly present the facts and her tax return position to the agent. In this phase, any accuracy penalties may be proposed by the agent for negligence or substantial understatement.

During the issue development stage, the revenue agent may make multiple field visits to the taxpayer’s place of business. During this phase, the taxpayer should take the following actions.

Summary of Field Audit Phase 3: Issue Development

Action	Issue Development Steps and Tips
Respond to agent’s requests	Respond to IDRs in writing to clarify the facts. Prepare and attend interviews as needed. Monitor IRS compliance with procedural issues (third-party contacts, requests for information, statute of limitations issues, etc.).
Advocate position(s)	Resolve issues as they are proposed. Research tax law positions. Provide additional evidence and clarify factual discrepancies. Provide penalty defenses, if needed. Provide agreement on issues, if warranted. Prepare dispute on issues.

The IRS revenue agent’s audit plan for this phase includes:

This phase concludes when the agent’s field work is completed. When all of the issues are fully developed, the agent moves to the issue resolution and audit closing phase.

Field Audit Phase 4: Issue Resolution and Closing the Audit

If no issues are present, the audit will close and the agent will advise the taxpayer that he will be recommending that the IRS accept the return as filed, subject to the approval of the agent’s manager. This is called a “no-change” audit. After approval, the IRS will send Letter 590, No-Change Letter, to the taxpayer. This officially closes the no-change audit. [IRM 4.10.8.3.5 (4-10-2023)]

However, many field audits result in unagreed issues on which the taxpayer will request an appeal of the agent’s determination. Data from 2019 shows higher rates of appeals requests for IRS field audits as opposed to other types of audits. [IRS Data Books, 2010-2019, Table 27 and Taxpayer Advocate Service, 2018 Annual Report to Congress, Most Serious Problem #9, Field Examination]

If the agent proposes issues, the taxpayer will be given the opportunity to contest the unagreed issue(s) with the agent and his manager via a manager conference. The auditor will propose the issues on Form 4549, Income Tax Examination Changes, and explain the adjustments on Form 886-A, Explanations of Items. In field audits, the manager is obligated to intervene on all unagreed issues. If resolution cannot be reached at the manager level, the following further appeal rights will be explained to the taxpayer:

• Appeal the determination with the IRS Independent Office of Appeals.
• Bypass IRS Appeals and petition the U.S. Tax Court.
• Allow the tax to be assessed and file a claim for refund procedures to contest the liability in District Court or the Court of Claims.

The auditor’s manager will issue Letter 950, 30-Day Letter, that invites the taxpayer to petition her case to the IRS Independent Office of Appeals by filing a protest within 30-days of the date of the letter. IRS auditors can extend the 30-day period in reasonable circumstances (new representative, more time needed for a substantive petition, sickness of taxpayer, complex issues requiring extensive research), but extensions are usually for not more than 30 days. [IRM 4.10.8.12.1 (4-10-2023)]

When the taxpayer submits a protest to the auditor, the auditor can provide a rebuttal to the argument and include it in the case file that is forwarded to IRS appeals. The auditor will send the rebuttal to the taxpayer. [IRM 4.10.8.12.9.3 at (5) (4-10-2023)]

If the taxpayer elects to protest to the IRS Independent Office of Appeals, the agent will solicit a Consent to Extend the Time to Assess Tax (Form 872) if the ASED is within 365 days. [IRM 4.10.8.12.1 at (1) (4-10-2023)]

In the Issue Resolution/Closing the Audit phase, the taxpayer should take the following actions:

Summary of Field Audit Phase 4: Issue Resolution and Audit Closing

Action	Issue Resolution/Audit Closing Steps and Tips
Resolve issues with agent/manager	Discuss disagreements with agent and attempt to resolve issue(s). Provide additional evidence and law to support position. Conduct manager conference. Discuss each factual and legal disagreement with the manager and attempt to resolve each factual or legal discrepancy. Obtain manager’s position on any penalty issues and argue taxpayer’s position. Reach agreement or disagreement on issue(s).
Appeal the determination	Consider appeals options and conduct risk analysis for probable outcome and cost/benefit of appealing. Execute appropriate statute extensions, if needed. Prepare timely protest. Prepare appeals hearing argument, considering the agent’s rebuttal to the protest.
Appeals hearing and closure	Attend appeals hearing. Respond with additional information supporting the tax position(s). Reach a settlement or concession on issues and execute agreements. If agreement cannot be secured, consider further appeals, including claim for refund procedures.
Deficiency payment	Consider payment of deficiency within 21 days (10 days if the amount of deficiency is $100,000 or more) to avoid imposition of additional failure to pay penalties. [IRC §6651(a)(3)] Obtain a collection alternative if unable to pay. Consider claim for refund procedures by paying the deficiency and filing a claim for refund. Once the claim for refund is denied or 180 days expires, the taxpayer can sue the IRS in the U.S. District Court of Claims to argue the audit issues.

This phase for the revenue agent includes:

If the taxpayer appeals the decision, the next step is to resolve the case with the IRS Independent Office of Appeals and/or other appeal venues.

Audit Appeals

The taxpayer is given the opportunity to appeal an IRS office or field examination.

The first level of appeal is to request a manager conference to discuss the unagreed issues. Taxpayers can request a manager conference with the IRS auditor or by contacting the manager directly.

If the manager conference is not successful in resolving the audit issues, the taxpayer is given two forms of appeals that do not first require payment of the tax:

1. IRS Independent Office of Appeals upon Receipt of the 30-Day Letter: the taxpayer must request an appeal with the IRS within 30 days of receipt of the 30-day letter.
2. U.S. Tax Court upon Receipt of the Statutory Notice of Deficiency (90-Day Letter or “SNOD”): the taxpayer can petition the U.S. Tax Court within 90 days after receipt of the SNOD.

If the taxpayer does not utilize his prepayment appeals options, he will need to either request audit reconsideration, file an Offer in Compromise – Doubt as to Liability, or follow claim for refund procedures.

Practice Tip: It is very rare for the IRS to reconsider audit results with an IRS audit reconsideration or OIC- Doubt as to Liability when the taxpayer was able to participate in the audit and request an appeal. However, the taxpayer can utilize these options to reconsider the audit results if the taxpayer has new information or there has been new authority found to support the taxpayer’s position.

The IRS Independent Office of Appeals settles most audit cases. The Appeals Office can take a fresh look at the taxpayer’s facts and argument and the IRS determination to make an independent determination. Based on the findings, appeals can sustain the IRS auditor’s findings or change them. Appeals Officers (AO) can consider the “hazards of litigation” – that is, the risk that the IRS may lose in court on a particular issue. [IRM 8.6.1.7.2 (10-1-2016)] In audits, the analysis of the facts, legal interpretation, and evidence provided are all considered in determining the hazards of litigation.

Appeals Request

When appealing a mail audit case, the taxpayer will need to outline all disagreements. The IRS provides Form 12203, Request for Appeals Review, if the amount of proposed tax, penalties, and interest is $25,000 or less. If the amount is above $25,000, the taxpayer should complete a custom protest that outlines the facts, law, argument, and taxpayer’s position. This template, Appeals Request, provides an outline for an appeals request.

Right to an Appeals Hearing and Requesting the IRS Auditor’s Audit File

In 2019, Congress passed the Taxpayer First Act (TFA) [H.R. 3151 (116th Congress) P.L. 116-25] which made two material changes to the appeals process. First, the TFA provided that the appeals process is a right that should be available to all taxpayers. Generally, all taxpayers are now given a right to appeal (as opposed to the opportunity to appeal). If the IRS denies an appeal request, the IRS must provide the reasons for the denial in writing to the taxpayer. The TFA also provides that taxpayers must be given access to nonprivileged portions of the audit case file regarding the disputed issues no later than ten days before the appeals conference. [IRC §7803(e)(7)] The IRS implemented procedures for requesting this file in 2020. Letters to taxpayers (IRS Letter 5157) offer the taxpayer the opportunity to access the administrative file. [TIGTA Report 2023-15-010, February 10, 2023] In the Letter 5157, the IRS Appeals Officer will also invite the taxpayer to communicate directly with the Appeals Officer via the IRS secure messaging feature. The secure messaging feature is on IRS.gov at: www.irs/gov/connect. The letter will have the Appeals Officer employee ID code to be used to route the message to the Officer. Taxpayers using the Secure Messaging feature must have authenticated using the ID.me platform.

Practice Tip: When appealing an IRS determination, it is a good practice for the taxpayer to obtain the auditor’s workpapers. Workpapers can show the steps taken and facts relied on for unagreed issues. In an appeals conference, the taxpayer can clearly show misstatements or erroneous facts that the auditor relied on by referencing their workpapers. It is important to note that, in providing a copy of the audit file, the IRS is not required to provide the taxpayer information that the taxpayer provided to the IRS (i.e., IDR responses). It is very important, therefore, that the taxpayer keep a copy of all documents and IDR responses provided to the auditor.

Prior to enactment of the TFA, taxpayers were required to request the audit file from the auditor or manager or file a Freedom of Information Act (FOIA) request. The TFA restricts the right to obtain the audit file to individuals whose adjusted gross income does not exceed $400,000 for the year at issue and to businesses and other entities whose gross receipts do not exceed $5 million for the year at issue. [IRC §7803(e)(7)(C)(i)]

Appeals Hearing and Settlement

Taxpayers protesting their audit determination can expect several months to elapse before the IRS appeals hearing takes place. [GAO Report GAO-18-659, Opportunities Exist to Improve Monitoring and Transparency of Appeal Resolution Timeliness, September 2018] The appeals hearing can take place in person, by phone, or by virtual teleconference. If the taxpayer does not want to meet by phone, the taxpayer can request a face-to-face appeal to discuss the issues. The taxpayer may also be able to schedule a virtual conference with the Appeals Officer (AO). The IRS has piloted virtual appeals conferences since 2017 and many of its appeals officers can now offer this option.

The appeals process prohibits ex parte communications between IRS personnel (i.e., the IRS auditor, the manager, and others involved in the audit) and IRS appeals. [IRM 4.2.7.3 (6-29-2017)] “Ex Parte Communication” is communication between any Appeals employee and employees of other IRS functions without the taxpayer/representative having an opportunity to participate in the communication. [IRM 4.2.7.2 (6-29-2017)] Appeals may discuss the case with the Examination Unit employees in the presence of the taxpayer (or authorized representative) or with consent. Appeals may also give the taxpayer the opportunity to participate in the discussion. [IRM 4.2.7.3 (6-29-2017)]

The prohibition on ex parte communication is required by the Restructuring and Reform Action of 1998. Ex parte communication does not include the following:

• Database inquiries (such as account inquiries, transcript requests, and other similar inquiries conducted in an electronic environment). This exception does not apply to the administrative file, which may be in electronic format.
• Communication solely between or among Appeals employees.
• Communication with other governmental entities.
• Communication in which the taxpayer or representative is given an opportunity to participate.
• Communication about ministerial, administrative, or procedural matters.
• Communication as part of the Fast Track Settlement process.
• Non-case specific communication between Appeals and other IRS functions.

[IRM 4.2.7.2 (6-29-2017) at (4)]

In the appeals hearing, the AO will first review the taxpayer’s protest. The AO will schedule the appeals conference with the taxpayer to discuss the facts, arguments, and law pertaining to the case. The AO will take an impartial view and decide the case. The taxpayer will be given an opportunity to argue the case. Ultimately, the AO and the taxpayer will attempt to settle the case or disagree and move forward to the Statutory Notice of Deficiency where the taxpayer can further appeal to the U.S. Tax Court.

There are four possible outcomes in IRS appeals:

1. IRS agrees with taxpayer: in this case, the AO concedes all issues and provides the taxpayer a “no-change” letter.
2. IRS and taxpayer reach a “mutual settlement:” the taxpayer and the IRS settle each issue individually by concession or a percentage amount allowed per issue. In these cases the taxpayer and the IRS agree and execute a Form 4549, Income Tax Examination Changes, Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment, or Form 906/866, Closing Agreement on Final Determination Covering Specific Matters/Agreement as to Final Determination of Tax Liability, to settle the issues involved. If the changes are significant, the IRS often uses Form 870-AD for mutual settlements. [IRM 8.6.4.4.2 (6-16-2020)]
3. IRS and taxpayer reach a “split issue settlement:” the taxpayer and the IRS settle the issues based on a percentage of the issue allowed/disallowed or a percentage of the amount of the entire tax. In these cases, the IRS almost always executes Form 906, Closing Agreement on Final Determination Covering Specific Matters, or Form 866, Agreement as to Final Determination of Tax Liability, with the taxpayer to fully settle all issues involved. [IRM 8.6.4.2.2 (6-16-2020)]
4. IRS disagrees with the taxpayer: the IRS does not want to settle based on the case facts or IRS position regarding the issues and moves forward to issue a Statutory Notice of Deficiency.

The IRS can also settle some issues with the taxpayer but disagree on other issues. In these cases, the IRS will seek to execute Form 870-AD for the agreed issues. [IRM 8.6.4.4.2 (6-16-2020)]

By signing IRS Form 4549 or 870, the taxpayer agrees to the immediate assessment of the tax and to forfeit the right to contest the findings in U.S. Tax Court. However, the taxpayer can dispute the tax using the claim for refund procedures.

IRS Forms 870-AD and 906/866 (closing agreements) are agreements that do not allow the taxpayer to further contest the appeals agreement. [IRM 8.6.4.6 (10-15-2005) and IRM 8.6.4.4.3 (10-26-2007)] These agreements are final, and the taxpayer waives the right to appeal the decisions in any venue. Both the IRS and taxpayers can use Form 870-AD or Form 906 to obtain finality of the audit. Both the IRS and the taxpayer are precluded from further re-opening of the case unless there is fraud, malfeasance, concealment or misrepresentation of a material fact. [IRC §7121(b)]

Mediation (Fast Track Settlement or “FTS”) is another IRS appeals option. FTS can be requested any time after an issued has been fully developed and the taxpayer/IRS disagree on the issue. [IRM 4.10.7.5.5 (9-12-2022)] However, the taxpayer rarely elects this option as taxpayers more readily request a hearing with the IRS Independent Office of Appeals. Taxpayers considering mediation should review IRM 4.10.7.5.5 (9-12-2022) and Publication 5022.

Offer in Compromise — Doubt as to Liability (OIC-DATL)

After reconsideration has been attempted, another option for contesting a liability from an audit or underreporter notice may be via an Offer in Compromise for Doubt as to Liability (OIC-DATL).

OIC-DATL is very rare as a solution for contesting the results of an audit or underreporter assessment. The taxpayer is afforded several opportunities to contest prior to the OIC-DATL including audit or CP2000 reconsideration and appealing to the IRS Independent Office of Appeals. In 2024, the IRS received 1,350 OIC-DATL applications. However, it accepted only 2. [IRS FOIA Response 2025-00032, October 2024]

A possible scenario for requesting an OIC-DATL is when the taxpayer has new information not considered in the audit. Another possible situation where the OIC-DATL is used is when the taxpayer is contesting the trust fund recovery penalty (i.e., when a responsible person is determined to be liable for the trust fund portion of unpaid payroll taxes). [IRM 8.25.1.7.4.1 at (3) (9-11-2018)]

Taxpayers cannot contest a liability where the liability has been established by a final court decision or judgment concerning the existence or amount of the tax liability. [IRM 4.18.1.2.1 (1-10-2022)] OIC-DATL is not appropriate for penalty or interest abatement, innocent or injured spouse claims, and amended return situations. [See Form 656-L]

OIC-DATL is most appropriate when the taxpayer has new information and evidence to support overturning a prior audit or CP2000 assessment. Taxpayers can also request an OIC-DATL when their liability was determined by the IRS in a substitute for return filing (i.e., taxpayer did not file, and the IRS filed a return for the taxpayer). [IRM 4.18.1.4.3 at (3) (11-4-2020)]

Taxpayers use Form 656-L, Offer in Compromise (Doubt as to Liability), to request an OIC-DATL. There is no fee to submit the application. In the application, the taxpayer should offer what they compute to be the proper amount of liability based on documentation and evidence provided. The offer must be $1 or more. [Form 656-L]

Once the OIC-DATL is assigned to an IRS auditor, the IRS will consider the OIC-DATL in the same manner as an audit or CP2000 reconsideration. [IRM 4.18.1.4.2 at (2) (11-4-2020)] If the OIC-DATL is accepted, the auditor will prepare a revised examination report (Form 4549). [IRM 4.18.1.5 (11-4-2020)] If the auditor disagrees with the OIC-DATL, the taxpayer can appeal within 30 days of the rejection determination. [IRM 4.18.1.4.3.3 at (3) (11-4-2020)]

Office/Field Audit Process and Action Grid

The grid below outlines the mail audit notice stream and compliance activity. For each phase, the grid provides:

• What happens
• Common issues
• Timeframes
• Time to respond
• Request for additional time
• Letters/forms used
• Recommended actions

IRS Audit Technique Guides

A listing of the IRS ATGs used in IRS field audits appears below. The ATGs provide guidance on certain industries and issues and provides clarity on the IRS audit procedures and issues to be developed in these examinations.

Industry/Issue	Date	Description
Activities Not Engaged in for Profit – IRC §183	9/2021	Guidance to Revenue Agents and Tax Compliance Officers in pursuing the application of IRC §183, Activities Not Engaged in for Profit (sometimes referred to as the “hobby loss rule”).
Aerospace Industry	01/2005	Assists examiners in evaluating research credit in the aerospace industry. The guide focuses on the unique aspects of the industry and provides examiners tools and tests to utilize in evaluating and auditing research credit.
Attorneys	01/2022	Guidance to the examiner who is auditing a taxpayer who is an attorney or an attorney firm and to provide tax-related guidance to taxpayers and other professionals in this industry.
Capitalization of Tangible Property	09/2022	Guidance to identify potential tax issues related to capitalization and disposition of tangible property.
Child Care Provider	01/2022	Provides information on tax-related issues pertaining to the childcare provider industry. It provides guidance on accounting for income and deductions.
Conservation Easement	01/2021	Guidance on charitable contributions of conservation easements.
Construction Industry	04/2021	Extensive guidance on construction industry. Overview of the industry including a glossary. Discusses types of contracts, types of contractors, methods of accounting, and joint ventures.
Cost Segregation	02/2025	Guidance in evaluating cost segregation studies submitted by taxpayers in support of depreciation deductions.
Credit for Increasing Research Activities (IRC §41)	06/2005	Guidance on the research credit under IRC §41.
Entertainment Industry	3/2023	Technical guidance for common issues arising in the entertainment industry. The Guide contains examination techniques, common and unique industry issues, business practices, industry terminology, and other information used in performing examinations.
Equity (stock)-based Compensation	06/2024	Guidance and audit techniques to evaluate equity (stock)-based compensation issues. The term “equity-based compensation” includes any compensation paid to an employee, director, or independent contractor that is based on the value of specified stock.
Excise Tax on Indoor Tanning Services	01/2025	Provides an overview of the indoor tanning tax and examination procedures and issues.
Golden Parachute	05/2024	Guidance and procedures to evaluate parachute examinations. The parachute examination can occur during the examination of either the corporation’s or the individual’s return.
IC-DISC	03/2012	Guidance for audits of a Form 1120 IC-DISC and/or its related shareholder(s).
IRC §162(m) Salary Deduction Limitation	09/2024	Questions to ask in an audit related to executive compensation.
Low-Income Housing Credit – Guide for Completing Form 8823–	1/2024	Provides standardized operational definitions for the noncompliance categories listed on Form 8823. The Form 8823 Guide provides state agencies with a single accumulative reference of current legal authorities needed for determining whether a Form 8823 must be filed with the IRS under Treasury Regulation §1.42-5(e)(3), along with guidelines and examples of the law’s application to specific fact patterns.
Nonqualified Deferred Compensation	03/2024	Guidance and audit techniques in evaluating non-qualified deferred compensation. A nonqualified deferred compensation (NQDC) plan is any elective or nonelective plan, agreement, method, or arrangement between an employer and an employee (or service recipient and service provider) to pay the employee compensation in the future.
Oil and Gas Industry	02/2023	Information on basic operations and common terminology in the oil and gas industry. Includes reference to royalty owners and an introduction to financial products.
Petroleum Refining Audit Technique Guide	6/2022	Guidance for audits of the petroleum refining industry.
Real Estate Property Foreclosure and Cancellation of Debt	08/2021	Guidance to Revenue Agents and Tax Compliance Officers conducting examinations of real estate foreclosures and cancellation of debt income.
Rehabilitation Tax Credit	12/2002	Provides examiners with audit aids (i.e., issue check sheet, pro forma Information Document Request, and standardized audit reports, etc.) which assist in identifying and addressing common rehab tax credit issues.
Research Credit Claims: Credit for Increasing Research Activities – section 41	05/2008	Guidance on the handling and evaluation of research credit claims.
Retail Industry	03/2021	Guidance on conducting audits on retail industry taxpayers.
Sections 48A and 48B – Advanced Coal and Gasification Project Credits	3/1/2022	Guidance and audit techniques in examining returns with Section 48A or 48B credits.
Split Dollar Life Insurance	04/2024	Guidance and audit techniques in examining split-dollar life insurance arrangements in executive compensation packages.

TEMPLATES FOR IRS AUDITS AND UNDERREPORTER NOTICES

Title	Useful for:
CP2000/2501 Template Response Cover Letter	Cover letter to use in responding to the IRS on a CP2000/2501 notice
Mail Audit Template Response Cover Letter	Cover letter to use in responding to the IRS on a mail audit notice
Formal IRS Audit Appeals Request	Appeals protest template to use in cases where the total amount for any tax period is more than $25,000 (tax and penalties)
T-account Template	Worksheet to measure incoming and outgoing funds to identify indications of a potential understatement of taxable income (i.e., a material imbalance)

IRS FORMS USED FOR UNDERREPORTER NOTICES, AUDITS, AND APPEALS ISSUES

Form	Title	Useful for:
656-L	Offer in Compromise (Doubt as to Liability)	Filing an OIC-DATL for an erroneous audit or underreporter assessment.
866	Agreement as to Final Determination of Tax Liability	An agreement reached between the IRS and the taxpayer to settle a case, usually in IRS appeals.
870	Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment	Taxpayer agreement to assess tax and bypass U.S. Tax Court. Taxpayer can use claim for refund procedures after signature to contest tax.
870-AD	Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment	Taxpayer agreement to assess tax and bypass U.S. Tax Court. The agreement is final and binding on both parties.
872	Consent to Extend the Time to Assess Tax	Agreement between IRS and taxpayer to extend the ASED. The agreement can be a definite date or open ended.
886-A	Explanations of Items (accompanies a Form 4549, Income Tax Examination Changes)	IRS form used to explain adjustments made in an audit that appear on Form 4549.
886-H-AOC	Supporting Documents to Prove American Opportunity Credit	Worksheet provided to the taxpayer in mail audits to provide documents to prove allowance of the AOC.
886-H-AOTC-MAX	American Opportunity Tax Credit Available for a Maximum of 4 Years	Worksheet provided to the taxpayer in mail audits to provide documents to prove allowance of the AOTC when it appears the taxpayer has claimed this deduction for more than four years.
886-H-DEP	Supporting Documents for Dependents	Worksheet provided to the taxpayer in mail audits to provide documents to prove dependent allowance.
886-H-EIC	Documents You Need to Send to Claim the Earned Income Credit on the Basis of a Qualifying Child or Children for Tax Year 2023	Worksheet provided to the taxpayer to request information to prove allowance of EITC based on a qualifying child.
886-H-HOH	Supporting Documents To Prove Head of Household Filing Status	Worksheet provided to the taxpayer in mail audits to provide documents to prove HOH filing status.
886-H-ITIN	Dependent – Related Tax Benefits and Credits – Explanation of Items	Worksheet provided to the taxpayer in mail audits to provide documents to prove the allowance of dependent and other related deductions for a child with an ITIN.
906	Closing Agreement on Final Determination Covering Specific Matters	An agreement reached between the IRS and the taxpayer to settle issues in a case, usually in IRS appeals.
4549	Income Tax Examination Changes	IRS form used to propose adjustments and additional tax in an audit.
4549-E	Income Tax Discrepancy Adjustments	IRS form used to propose adjustments and additional tax in an audit.
4564	Information Document Request	IRS formal request for information and documents used in an audit.
4822	Statement of Annual Estimated Personal and Family Expenses	IRS form used to quantify the taxpayer’s living expenses paid for the year. Used to measure whether the taxpayer has enough income reported to support documented living expenses.
5564	Notice of Deficiency – Waiver (AUR program)	Taxpayer agreement related to a CP2000 assessment to assess tax and bypass U.S. Tax Court. Taxpayer can use claim for refund procedures after signature to contest tax.
5701	Notice of Proposed Adjustments (used in more complex Field Audits)	Used during an audit (usually a mid- or large-size entity) to propose adjustments to the return.
11652	Questionnaire and Supporting Documentation – Form 1040 Schedule C (Profit or Loss from Business)	Worksheet provided to the taxpayer in mail audits to request information related to the taxpayer’s business and business expenses.
12203	Request for Appeals Review (Small Case Request – entire amount of additional tax and penalty proposed for each tax period is $25,000 or less)	Used to protest and document disagreements in small deficiency cases where the taxpayer requests a hearing with the IRS Independent Office of Appeals.
12661	Disputed Issue Verification	Form to submit with an audit reconsideration that outlines the dispute with each adjustment made by the IRS.
14086	Qualifying Children Residency Statement Third Party Affidavit	Affidavit for a third party to show that the taxpayer and qualifying children lived together part or all of the year.
14420	Verification of Reported Income	Response form used for 1099-K Underreporter inquiries.
14815	Supporting Documents to Prove the Child Tax Credit (CTC) and Credit for Other Dependents (ODC) for 2018-2025	Worksheet provided to the taxpayer to request information to prove allowance of the CTC and/or ODC.
14950	Premium Tax Credit Verification	Worksheet provided to the taxpayer to request information to verify PTC reporting on a tax return.
14817	Reply Cover Sheet	Response cover sheet for online response to a mail audit at www.irs.gov/examreply.
14801	Child and Dependent Care Credit – Explanation of Items	Worksheet provided for Child and Dependent Care audit adjustments.
14824	Supporting Documentation to Prove Filing Status	Worksheet for documents to prove filing status.

COMMON IRS UNDERREPORTER AND AUDIT LETTERS AND NOTICES

For underreporter inquiries:

Notice #	Title	Used for:
CP2000	Request for Verification of Unreported Income, Payments, or Credits	Notifies taxpayer of a proposed change to tax liability because of income that is not identifiable or apparently not fully reported on the return and/or credits and deductions that appear overstated.
CP2501	Initial Contact to Resolve Discrepancy Between Income, Credits, and/or Deductions Claimed on Return and Those Reported by Payer	Pre-CP2000 Contact Letter. In certain situations, an initial notice sent to the taxpayer requesting an explanation to resolve a discrepancy between items reported by the taxpayer on the tax return and the information provided by third parties regarding those items. If the taxpayer fails to respond or if the response is insufficient, the Service sends a CP2000 notice proposing an adjustment. [IRM Exhibit 1.4.19-1]
4314C	Interim Response	When a quality response cannot be issued timely, an automatic, interim response is sent the 30th calendar day from the IRS-received date. [IRM 4.19.2.3.1 at (2) (8-15-2017)]
CP2005	AUR No-Change Letter	AUR Inquiry is closed with no change to the tax liability and/or refundable credits.
CP3219A	Statutory Notice of Deficiency	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of appeal rights to the U.S. Tax Court.
CP21E/ CP22E	Assessment from a CP2000	Balance due from the AUR adjustment. [IRM 3.14.1.6.18.1.1 (1-1-2015)]
CP2057	Soft Notices Income Discrepancy	Informs the taxpayer there appears to be a discrepancy with income reported by a third party to the IRS. The notice provides information, such as the name of the third party and the address, requests that the taxpayer review his records, and whether the income reported on the return is correct or not. The taxpayer is instructed to file an amended return if the original return was not correct. [IRM 21.3.1.6.52 (10-2-2023)]
2030	Business Underreporter Notice	Business underreporter matching notice showing underreported income information and proposing additional tax and penalties (similar to the individual letter CP2000).
2531	Business Underreporter Notice, Initial Notice to Explain Discrepancies	Pre- Letter 2030 business underreporter matching letter. Requests taxpayer to resolve discrepancies related to business (EIN) underreporting (similar to individual letter CP2501).
5035	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS is questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. This notice does not require a response to the IRS. The taxpayer may need to voluntarily file an amended return based on his own investigation of income.
5036	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS is questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. Requires a response in 30 days that provides information that shows that the 1099-K is not accurate, an amended return to report the income, and/or an explanation that the return and 1099-K are correct with an explanation for why the business gross receipts from card payments are higher than expected (card payments as compared to cash payments received).
5039	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS is questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. Requires a response in 30 days and for the taxpayer to complete Form 14420, Verification of Reported Income. IRS reserves the right to take further action, such as an audit or underreporter notice.
5043	Notice of Possible Income Underreporting: 1099-K Discrepancy	IRS is questioning underreporting of business income due to 1099-K reporting inconsistencies or discrepancies. Requires a response in 30 days that provides information that shows that the 1099-K is not accurate or an amended return to report the income. The IRS may contact the taxpayer for further enforcement (underreporter notice or audit).

For mail audits:

Notice #	Title	Used for:
CP75	Exam Initial Contact Letter – EITC – Refund Frozen	EITC audits in which the IRS has frozen the taxpayer’s refund until the taxpayer can prove that she is entitled to the EITC. [IRM 4.19.14.4 (6-22-2023)]
CP75A	Exam Initial Contact Letter – EITC – No Refund Frozen	EITC audits in which the IRS has not frozen the taxpayer’s refund. [IRM 4.19.14.4 (6-22-2023)]
CP06	Exam Initial Contact Letter – PTC – Refund Frozen	Premium tax credit discrepancy audits in which the IRS has frozen the taxpayer’s refund until the taxpayer can prove the correctness of the PTC. [IRM 21.3.1.6.2 (10-2-2023)]
CP06A	Exam Initial Contact Letter – PTC – No Refund Frozen	Premium tax credit discrepancy audits where the IRS has not frozen the refund. [IRM 21.3.1.6.2 (10-2-2023)]
566-S	Initial Contact Letter (Examination by Mail)	IRS audit notification letter with identified issues under audit and request for information, including EITC. The letter can also propose changes to the return as shown on IRS Forms 4549 and 886-A. [IRM 4.19.15.25.4 (2-1-2022)]
2194	Alternative Minimum Tax Proposal Letter	Processed tax returns identified as taxpayers who are liable for the AMT but have not completed or attached Form 6251, Alternative Minimum Tax – Individuals. Taxpayers will initially receive Letter 12C and Letter 2194 will be issued if the taxpayer does not respond in order to assess AMT. Form 4549 proposing the AMT is included. [IRM 4.19.15.8.1 (2-1-2022)]
525	General 30-Day Letter	Includes Examination Report (Form 4549 with Form 886-A) and provides right to appeal within 30-days to IRS Office of Appeals. [IRM 4.19.13.33.1 (3-24-2017)]
3219	Statutory Notice of Deficiency	Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of the appeal rights to the U.S. Tax Court. [IRM 4.19.10.4.10 (1-1-2023)]
555	Notification of Findings Based on Taxpayer’s Recent Data Re: Tax Liability	Taxpayer replies after the 90-day letter is issued. [IRM 4.19.17.3.3 (10-1-2015)]
590	No Change Final Letter	Final closing letter for no change cases with no adjustments. [IRM 4.10.8.3.1 at (4) (4-10-2023)]
CP21E/CP22E	Adjustment Made to Account	Balance due from the audit adjustment. [IRM 3.14.1.6.18.1.1 (1-1-2015)]

For office/field audits:

Notice #	Title	Used for:
2202	Initial Contact Letter – Firm Set Appointment Letter	Office Exams: Initial contact letter used to schedule a firm initial appointment date and time for individual taxpayers. [IRM 4.10.2.8.1.1 (11-4-2016)]
2205	Initial Contact Letter	Field Exams: Initial contact letter; does not list the issues being examined. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.2 (9-9-2019)]
2205-A	Initial Contact Letter	Field Exams: Initial contact letter; lists the issues being examined. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.2 (9-9-2019)]
3572	SB/SE Office Exam Call-Back Appointment Letter	Office Exam: sent to request individual taxpayers who must call to schedule an initial appointment. Allows the taxpayer 14 calendar days to respond. [IRM 4.10.2.8.1.1 (11-4-2016)]
525	General 30-Day Letter	Letter from IRS auditor proposing adjustments to the return. Includes the audit report (Form 4549), explanation of adjustments, and tax computation. The taxpayer must request an appeal within 30 days with the IRS Office of Appeals if the taxpayer disagrees and wants to appeal within the IRS.
950	30-Day Letter	Field Exam: 30-day letter transmitting audit results where there was a change to the return. This notice allows the taxpayer the right to appeal. [IRM 4.10.8.12.1 (4-10-2023)]
531	Statutory Notice of Deficiency (90-Day Letter)	The Statutory Notice of Deficiency, required by law, informs the taxpayer of the tax assessed, plus penalties and interest, that he or she owes. This letter also advises the taxpayer of the appeal rights to the U.S. Tax Court. [IRM 4.8.9.9.3 (7-9-2013)]
590	No Change Final Letter	Final closing letter for no change cases with no adjustments. [IRM 4.10.8.3.5 (4-10-2023)]
CP21E/CP22E	Adjustment Made to Account	Balance due from audit adjustment. [IRM 3.14.1.6.18.1.2 (1-1-2015)]
3900	Closing Agreement Cover Letter	Appeals: Letter that accompanies a Closing Agreement settlement between the taxpayer and the IRS (Form 906). [IRM 8.20.7.13.2 (9-28-2018)]

Crypto-currency notices:

Notice	Title	Used for:
6173	Initial Contact Letter: Reporting Virtual Currency Transactions (response required)	Targeted soft notice to crypto-currency holder for 2013-2017 requesting the taxpayer to file, review, and/or amend the return. A response is required from the taxpayer before the response date on the letter.
6174	Initial Contact Letter: Reporting Virtual Currency (no response required)	Targeted soft notice to crypto-currency holder for 2013-2017 requesting the taxpayer to review and/or amend the return. No response is required, and the IRS does not plan to follow up on the notice and/or response.
6174-A	Initial Contact Letter: Reporting Virtual Currency Transactions (no response required but IRS may follow up)	Targeted soft notice to crypto-currency holder for 2013-2017 requesting the taxpayer to review and/or amend the return. No response is required, but the IRS may contact the taxpayer in the future about compliance.

 

IRS UNDERREPORTER, AUDIT, AND APPEALS PUBLICATIONS

A list of helpful IRS Publications appears below. For the full text of these Publications, see the IRS website (irs.gov).

Publication/URL	Title	Useful for	Latest Version
Pub. 1	Your Rights as a Taxpayer	Required IRS publication to explain rights to a taxpayer in an audit.	9/2017
Pub. 5	Your Appeal Rights and How to Prepare a Protest If You Disagree	How to prepare an appeal protest if you disagree in an audit.	4/2021
Pub. 556	Examination of Returns, Appeal Rights, and Claims for Refund	Overview of the audit process, including all methods to appeal a disagreement.	9/2013
Notice 746	Information About Your Notice, Penalty, and Interest	Information on penalties and interest assessed.	12/2024
Pub. 1035	Extending the Tax Assessment Period	Reasons for and options to extend the time to assess additional tax.	9/2017
Pub. 3498	The Examination Process	Overview of the audit and appeals process and what to expect in an audit.	11/2004
Pub. 3498-A	The Examination Process (Audits by Mail)	Overview of the mail audit process and appeals options.	5/2021
Pub. 3524	EITC Eligibility Checklist For Tax Year 2023	Earned income tax credit checklist often referred to in EITC mail audits.	11/2023
Pub. 3598	Audit Reconsideration	Information on who qualifies and how to request audit reconsideration.	11/2023
Pub. 4167	Appeals: Introduction to Alternative Dispute Resolution	Explanation of alternative appeals options including fast track mediation, fast track settlement, mediation, early referral to appeals, and arbitration and when/how these options apply.	4/2021
Pub. 4227	Appeals Welcome Brochure	Introduction to the appeals process and expectations.	1/2020
Pub. 5022	Fast Track Settlement	Who qualifies and how to apply for FTS in an audit.	9/2021
Pub. 5146	Employment Tax Returns: Examinations and Appeal Rights	Detailed explanation of the audit and appeals process for employment tax examinations. Often used in small business audits where employee/classification issues are present.	3/2024
Pub. 5181	Tax Return Reviews by Mail	How to respond and appeal underreporter notices.	12/2022