The IRS audit process is a formal review of a filed tax return that moves through predictable stages: selection, a notice identifying what’s being questioned, a document review conducted by mail or in person, a proposed adjustment, and then either agreement, an administrative appeal, or a Tax Court petition. Each stage has its own deadlines and its own decisions to make. Knowing what the IRS can and cannot do at each step is what keeps an audit from costing more than the law actually requires.
How the IRS Picks Returns to Audit
Most audits start with a computer score. The IRS runs every return through its Discriminant Function System, which rates how likely a review would produce a change to the reported tax. High-scoring returns go to a human classifier, who decides whether to open an examination.1Internal Revenue Service. Understanding the IRS Examination Process A separate score, the Unreported Income DIF, rates the likelihood of missing income.
Information matching catches a different category of problem. The IRS compares what you reported against the W-2s and 1099s your employers, banks, and clients filed. A mismatch often triggers a notice or a closer look. Audits can also start because a related return raised questions — a partnership audit, for example, can pull in the partners’ individual returns.
The Three Types of Audits
The format of the audit tells you almost everything about how much time and effort it will take.
Correspondence Audits
Correspondence audits handle most examinations and are the least intrusive. Everything happens by mail or through the IRS Document Upload Tool. You get a letter naming one or two specific items — a questioned deduction, a credit like the Earned Income Tax Credit, or unreported income — and a deadline to send supporting documents.2Taxpayer Advocate Service. Letter Notifying Taxpayer of Audit with Request for Additional Information The scope stays narrow. Send copies, never originals.
Office Audits
An office audit is an in-person meeting at a local IRS office with a Tax Compliance Officer. The IRS uses this format when the issue is more than a single receipt — itemized deductions on Schedule A or business expenses on Schedule C, for instance. The notice lists what to bring and when to appear. The scope stays tied to the schedules or line items the notice identifies.
Field Audits
Field audits are the deepest. A Revenue Agent visits your place of business or your representative’s office and works through your financial records in detail. These usually involve larger businesses, complex partnerships, or individuals with significant business income, and they often cover multiple years. The agent issues formal Information Document Requests (IDRs) for specific books and records. A field audit can take many months, and the wide scope means casual conversations can quickly open new lines of inquiry. Representation matters more here than in any other format.
What the Notice Asks For and How to Respond
Preparation drives the outcome more than any other factor. Start pulling records the day the notice arrives. The IRS letter identifies the tax year, the items in question, and the deadline. Everything you send should map to those items.
Gather bank statements, canceled checks, invoices, receipts, and any contemporaneous logs that support the questioned items. Federal law requires you to keep records sufficient to substantiate what you reported,3Office of the Law Revision Counsel. 26 USC 6001 – Notice or Regulations Requiring Records, Statements, and Special Returns and the burden of proof is on you. A deduction you can’t document usually gets disallowed in full.
Some categories carry heightened standards. Business use of a vehicle generally requires a contemporaneous mileage log with date, destination, and business purpose. Charitable contributions above $250 require a written acknowledgment from the recipient organization. Reviewing your own records first lets you fill gaps before the agent finds them.
In office and field audits, the agent formalizes requests through IDRs. Read each one carefully and provide exactly what it asks for. Sending extra material can point the agent toward issues that weren’t originally in scope. The Document Upload Tool now accepts responses for many audits — JPGs, PNGs, or PDFs, with confirmation of receipt.4Internal Revenue Service. IRS Document Upload Tool For correspondence audits, it’s faster and more reliable than mail.
Your Rights Once the Audit Starts
The Taxpayer Bill of Rights applies from the notice through final resolution.5Internal Revenue Service. Taxpayer Bill of Rights The ones that matter most during an examination:
- You owe only the correct amount under the law, including any penalties and interest that legitimately apply.
- You can hire an attorney, CPA, or Enrolled Agent to handle all IRS communications. If you can’t afford one, a Low Income Taxpayer Clinic may represent you free or at low cost.
- You can appeal most IRS decisions through the Independent Office of Appeals, and you can take your case to court.
- Any IRS inquiry must be no more intrusive than necessary.
- You can raise objections and expect the IRS to consider them fairly.
- You have the right to know the maximum time the IRS has to audit a year, and to know when the audit is finished.
You can also record any in-person interview. The statute requires an advance request without setting a timeframe,6Office of the Law Revision Counsel. 26 USC 7521 – Procedures Involving Taxpayer Interviews but IRS internal procedures set that at 10 calendar days before the interview. If your request arrives late, the agent can allow the recording anyway or reschedule.7Internal Revenue Service. Internal Revenue Manual 4.10.3 – Examination Techniques
Bringing In a Representative
To authorize someone to handle the audit for you, file Form 2848, Power of Attorney and Declaration of Representative. All correspondence and communications then route through them.8Internal Revenue Service. About Form 2848, Power of Attorney and Declaration of Representative You can also grant authorization through your IRS online account.9Internal Revenue Service. Power of Attorney and Other Authorizations
Most experienced representatives advise clients not to attend the examination meeting. Your presence invites direct questions, and offhand answers can broaden the audit. The representative handles procedural and factual questions from prepared documentation. If the agent insists on speaking with you, your representative can pause the interview to consult first. The Taxpayer Advocate Service takes cases involving economic or systemic hardship if you can’t afford paid representation.10Internal Revenue Service. Internal Revenue Manual 13.1.7 – Taxpayer Advocate Service Case Criteria
How Long the IRS Has to Assess
Before you produce anything, check the statute of limitations. For most returns, the IRS has three years from the later of the return’s due date or the date you filed to assess additional tax.11Internal Revenue Service. Time IRS Can Assess Tax That window stretches to six years if you omitted gross income exceeding 25% of what you reported.12Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection For a fraudulent return or an unfiled return, there is no time limit at all.
If the deadline is coming up and the agent isn’t done, the IRS will ask you to sign Form 872, Consent to Extend the Time to Assess Tax, which pushes the assessment deadline to a specific future date.13Internal Revenue Service. Publication 1035 – Extending the Tax Assessment Period Think before signing. Refusing forces the IRS to either close the case or issue a Notice of Deficiency immediately, which triggers your right to petition Tax Court. But if the agent is close to a favorable outcome, more time can help. When you agree, you can negotiate a restricted consent covering only specific issues rather than the entire return.
When the Agent Finishes: Three Possible Outcomes
Once the review wraps up, the audit ends one of three ways.
No Change
If the agent concludes your return was correct as filed, you receive a no-change letter and the audit closes with nothing owed. A no-change result also carries some protection against repeat audits: the IRS has internal procedures to screen out examinations that target the same issues examined in either of the two prior years when those audits produced no change or only a small adjustment.
You Agree With the Adjustments
If you accept the agent’s findings, you sign Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax.14Internal Revenue Service. IRS Form 870 – Waiver of Restrictions on Assessment and Collection Signing lets the IRS assess the deficiency right away. Filing the waiver also has a practical benefit: if the IRS doesn’t send you a bill within 30 days, interest is suspended from that 30th day until the IRS actually issues its notice and demand for payment.15Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax Since interest compounds daily, that suspension can save real money.
You Disagree
If you disagree with part or all of the findings, the IRS sends a 30-day letter, typically Letter 525, along with the examination report. You have 30 days from the date of that letter to accept the adjustments or file a written protest requesting a conference with the Independent Office of Appeals. Miss the deadline and the IRS moves ahead with a Statutory Notice of Deficiency.16Taxpayer Advocate Service. Letter 525 Audit Report/Letter Giving Taxpayer 30 Days to Respond
A formal protest identifies the disputed adjustments, states the relevant facts, and explains the legal arguments for your position. The quality of the protest heavily shapes what happens next.
Penalties and Interest When You Owe
An audit assessment isn’t just the tax. Interest and penalties often add substantially to the total.
Interest
Interest on an underpayment runs from the original due date of the return until you pay in full.15Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax The rate is set quarterly at the federal short-term rate plus three points for individuals. For the first quarter of 2026, the underpayment rate is 7%; for the second quarter, it drops to 6%.17Internal Revenue Service. Quarterly Interest Rates Interest compounds daily. The longer a deficiency sits, the more it grows.
Accuracy-Related Penalty
The most common audit penalty is the 20% accuracy-related penalty under Section 6662, which applies to the portion of an underpayment caused by negligence, disregard of rules, or a substantial understatement of tax.18Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments For individuals, a “substantial understatement” means the understatement is more than the greater of 10% of the correct tax or $5,000. If you claimed the Section 199A qualified business income deduction, the 10% threshold drops to 5%. The penalty doesn’t apply to any portion where you can show reasonable cause and good faith.
Civil Fraud Penalty
If the IRS proves that any part of an underpayment is attributable to fraud, the penalty rises to 75% of the fraudulent portion.19Office of the Law Revision Counsel. 26 USC 6663 – Imposition of Fraud Penalty The IRS carries the burden here, but once it proves fraud on any portion, the entire underpayment is presumed fraudulent unless you show otherwise by a preponderance of the evidence. The IRS cannot apply both the fraud penalty and the accuracy-related penalty to the same underpayment.
Appealing the Findings
The Independent Office of Appeals operates separately from the examination division. Its job is to resolve disputes short of litigation, and Appeals Officers have flexibility that examiners lack. They can weigh the “hazards of litigation,” meaning they can settle a case based on the realistic chance the IRS would win in court. Examiners have no such authority. A case is either substantiated or it isn’t at that level.
An Appeals conference is an informal settlement discussion, not a courtroom proceeding. The Appeals Officer reviews your protest along with the agent’s report and looks for weaknesses in the IRS’s position. A protest that identifies specific legal or factual problems gives the officer something concrete to work with. Vague disagreement rarely moves the needle.
If the conference produces agreement, you sign a closing agreement binding both sides. If it doesn’t, the case moves toward the Notice of Deficiency.
Fast Track Settlement
You can also request Fast Track Settlement, a voluntary mediation program that brings an Appeals mediator in while the examination is still open. The mediator facilitates discussion but can’t force either side to settle.20Internal Revenue Service. Fast Track For individuals and small businesses, the IRS targets resolution within 60 days of accepting the application, which you submit on Form 14017. Fast Track doesn’t waive your right to a full Appeals conference if mediation fails.
The 90-Day Letter and Tax Court
If Appeals can’t resolve the case, or if you skipped Appeals by not responding to the 30-day letter, the IRS issues a Statutory Notice of Deficiency, known as the 90-day letter. This is the last formal step before litigation.21Internal Revenue Service. Letters and Notices Offering an Appeal Opportunity
You have exactly 90 days from the date on the notice to file a petition with the United States Tax Court. If the notice is addressed to you outside the United States, the window is 150 days.22Internal Revenue Service. Internal Revenue Manual 4.8.9 – Statutory Notices of Deficiency Missing that deadline means the deficiency is assessed automatically. After that, your only path to challenge it is to pay in full and then sue for a refund in federal district court or the Court of Federal Claims. The Tax Court filing fee is $60.23United States Tax Court. Court Fees
The Tax Court’s central advantage is that you can dispute the deficiency without paying it first. For disputes where the total amount for any single year is $50,000 or less, including penalties, you can elect the Small Tax Case procedure, which is faster and less formal.24United States Tax Court. Guidance for Petitioners – About the Court The trade-off is that a Small Tax Case decision is final and cannot be appealed by either party.25United States Tax Court. Case Procedure Information Under regular procedures, either side can appeal to a federal circuit court.
Paying What You Owe
If additional tax is assessed, you don’t have to pay the full amount at once. The IRS offers several arrangements.26Internal Revenue Service. Payment Plans; Installment Agreements
- A short-term payment plan lets you pay in full within 180 days with no setup fee.
- A long-term installment agreement with direct debit costs $22 to set up online or $107 by phone or mail. Low-income taxpayers pay no setup fee.
- A standard long-term installment agreement (paying by check or other method) costs $69 to set up online or $178 by phone or mail. Low-income taxpayers pay $43.
Interest and penalties keep accruing on the unpaid balance while a plan is in effect, so faster payoffs cost less. While a payment plan application is pending, the IRS is generally barred from levying your assets.
If your debt substantially exceeds what you can realistically pay, an Offer in Compromise lets you settle for less than the full amount. Applying requires a $205 fee and an initial payment, both waived for taxpayers who meet the low-income guidelines.27Internal Revenue Service. Offer in Compromise The IRS reviews your income, expenses, assets, and ability to pay before deciding.
If You Missed a Deadline: Audit Reconsideration
Missing a deadline doesn’t always end the story. If the IRS assessed additional tax without your input, or if you have new documentation that wasn’t available during the original audit, you can request audit reconsideration.28Internal Revenue Service. Internal Revenue Manual 4.13.1 – Examination Audit Reconsideration Process
To qualify, you must have filed the return, the assessment must still be unpaid (or involve reversed credits you’re disputing), and you must offer information the IRS didn’t consider originally. Computational or processing errors by the IRS also qualify. Submit the request in writing, ideally using Form 12661, Disputed Issue Verification, with supporting documents. Reconsideration is not available once you’ve paid the assessment in full. At that point, the path is a formal claim for refund.