IRS Form 886-A, titled “Explanation of Items,” is the workpaper an IRS examiner prepares to explain, issue by issue, why the agency believes your return should be changed. If one arrived in your mail, the audit is winding down and the examiner has committed a position to paper. You typically have 30 days from the cover letter to agree, push back, or set yourself up for Tax Court, and how you use those days matters more than almost anything else that happens in the case.
What’s Inside the Form
Form 886-A is a narrative, not a summary. For every proposed adjustment, the examiner writes out four things in sequence.
Statement of Facts
This section lays out what the examiner found: the records you provided (or didn’t), the examiner’s observations, third-party data the IRS pulled, and anything you said during an interview. Read it slowly. A factual error is often the easiest thing to challenge, because every legal conclusion above rests on those facts. If the examiner mischaracterized your business activity or misdated a transaction, the adjustment built on that mistake can collapse with it.
Applicable Law
Here you’ll see the Internal Revenue Code sections, Treasury Regulations, revenue rulings, or court cases the examiner is relying on. If the IRS is disallowing a home office deduction, expect a citation to the governing code section and a list of the requirements the examiner says you failed to meet.
Conclusion
The conclusion applies the law to the facts and explains how the examiner arrived at the adjustment. This is the argument you have to counter if you disagree. Whatever you write in a protest should track this section point for point.
Computation
The last part shows the math: additional tax, and any penalties applied. The accuracy-related penalty, for instance, appears as 20% of the underpayment.1Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments Check every line against your own records. Examiners make arithmetic errors, and catching one can reduce the adjustment without arguing the underlying law at all.
How It Fits with Form 4549
Form 886-A doesn’t arrive alone. The IRS pairs it with Form 4549, “Income Tax Examination Changes,” the summary sheet that lists each adjustment as a line item and totals the additional tax or refund.2Internal Revenue Service. Audits by Mail – What to Do Think of 4549 as the receipt and 886-A as the reasoning behind each charge. Work through the 886-A narratives first, then check the numbers against the 4549 totals. If the reasoning is wrong, the numbers should move with it.
Your Options Within the 30 Days
The cover letter with your audit report starts a 30-day clock.3Internal Revenue Service. Preparing a Request for Appeals Four paths run from here.
Agree and Sign
If the adjustments hold up, sign Form 4549 and return it with payment if you owe.2Internal Revenue Service. Audits by Mail – What to Do Signing closes the audit and gives up your right to appeal inside the IRS. Interest stops running on what you pay, so agreeing quickly when the IRS is right saves money.
Request IRS Appeals
If you disagree with all or part of the report, request a hearing with the IRS Independent Office of Appeals. Appeals officers work separately from the examination division and have settlement authority the examining agent doesn’t. For most cases you file a formal written protest before the deadline in your letter. The protest should identify each adjustment you’re contesting, state the facts as you see them, and cite the legal authority for your position.3Internal Revenue Service. Preparing a Request for Appeals
If the additional tax and penalties for each tax period total $25,000 or less, you can file a Small Case Request instead, which is shorter and less formal.3Internal Revenue Service. Preparing a Request for Appeals IRS Publication 5 sets out the specific requirements for each type of submission.4Internal Revenue Service. IRS Publication 5 – Your Appeal Rights and How to Prepare a Protest If You Disagree
Ask About Fast Track Settlement
Before the audit officially closes, you may be able to request Fast Track Settlement, which brings an Appeals officer into the case while it’s still with the examining division and aims for a compressed resolution. It works best when issues are fully developed and few in number. Some cases don’t qualify, including constitutional challenges to the tax laws, issues designated for litigation, and cases where neither side will move.5Internal Revenue Service. LB&I/Appeals Fast Track Settlement Program Ask the examiner about eligibility before the 30 days start ticking.
Do Nothing
Ignoring the report doesn’t stall it. If you don’t respond, the IRS moves on to issue a Statutory Notice of Deficiency.6Taxpayer Advocate Service. Letter 525 Audit Report/Letter Giving Taxpayer 30 Days to Respond Ignore that too and the IRS assesses the tax, penalties, and interest in full, and collection tools like liens, levies, and wage garnishment become available.
After 30 Days: The 90-Day Letter
If you don’t resolve the case with Appeals, the IRS sends a Statutory Notice of Deficiency, commonly called the 90-day letter. That notice is the legal prerequisite before the IRS can assess the additional tax.7Office of the Law Revision Counsel. 26 US Code 6212 – Notice of Deficiency Once you receive it, you have 90 days (150 days if the notice is addressed outside the United States) to file a petition with the U.S. Tax Court.8Office of the Law Revision Counsel. 26 USC 6213 – Restrictions Applicable to Deficiencies; Petition to Tax Court
Tax Court has one big advantage: you can contest the tax without paying it first, and the IRS is legally barred from collecting during the petition window and while the case is pending. Miss the 90 days and the IRS assesses the full amount. Your only remaining option is to pay in full and sue for a refund in federal district court or the Court of Federal Claims, a slower and more expensive route.
What the Total Actually Contains
The bottom line on Form 4549 is rarely just additional tax. The workpapers should show how interest and penalties were built in.
Interest
Interest on unpaid tax runs from the original due date of your return, not from the date the audit ends.9Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment of Tax An audit of a 2023 return in 2026 already carries roughly three years of accrued interest. The rate resets quarterly with market conditions; it was 7% for the first quarter of 2026 and 6% for the second.10Internal Revenue Service. Quarterly Interest Rates Interest compounds daily.11Office of the Law Revision Counsel. 26 USC 6622 – Interest Compounded Daily Unlike penalties, IRS interest generally can’t be waived; it keeps running until the balance is paid.
Accuracy-Related Penalty
The most common penalty in audit workpapers is 20% of the underpayment attributable to negligence, disregard of the rules, or a substantial understatement of income tax.1Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments A substantial understatement generally means the understated amount exceeds the greater of 10% of the correct tax or $5,000. If this penalty appears, the 886-A should explain why the examiner thinks it applies and whether you had reasonable cause. That reasoning is fair game to contest.
Failure-to-Pay Penalty
Once tax is assessed and you don’t pay after notice and demand, a failure-to-pay penalty of 0.5% of the unpaid tax accrues each month, capped at 25%.12Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax
Check the Statute of Limitations
The IRS generally has three years from the date you filed to assess additional tax. That extends to six years if you omitted more than 25% of your gross income, and there’s no limit at all for fraud or an unfiled return.13Office of the Law Revision Counsel. 26 US Code 6501 – Limitations on Assessment and Collection If your 886-A arrives after the applicable window has closed, raise the statute defense in your protest, in Appeals, or in a Tax Court petition. The IRS won’t raise it for you.
Bringing in a Representative
You can face an audit alone, but you don’t have to. Three categories of professionals have full authority to represent you before the IRS: attorneys, CPAs, and enrolled agents.14Internal Revenue Service. Office of Professional Responsibility and Circular 230 Any of them can speak with the IRS on your behalf, submit documents, negotiate, and sign agreements. Authorization runs through Form 2848, the Power of Attorney and Declaration of Representative.15Internal Revenue Service. Instructions for Form 2848
An unenrolled return preparer has only limited rights: they can represent you before revenue agents and examination officers for returns they actually prepared, but not at Appeals or on collection matters.15Internal Revenue Service. Instructions for Form 2848 If the case is likely to move past examination, choose someone with full practice rights up front.
If the Audit Is Already Closed
Sometimes the 886-A shows up long after everything has already happened. Maybe you moved and missed the notice, or you didn’t have the right documents at the time. Audit reconsideration reopens the examination so the IRS can review new information.16Taxpayer Advocate Service. Audit Reconsiderations There’s no special form. Write to the IRS office that last corresponded with you, identify the adjustments you want revisited, and attach the supporting documents.
Reconsideration isn’t available in every situation. It won’t work if you’ve already paid the full balance (you’d file an amended return instead), if you signed a closing agreement, or if a court has issued a final decision on the tax owed.16Taxpayer Advocate Service. Audit Reconsiderations The IRS may reverse the assessment, reduce it, or leave it in place.