If you’ve opened IRS Letter 2205, the IRS has selected your federal income tax return for an in-person examination and wants you to call by the deadline printed on the letter to schedule the first appointment. The letter names a specific tax year, lists the items on your return the examiner intends to verify, and identifies the contact person handling your case. Call promptly, start pulling records for the flagged items, and decide whether to bring a representative before you sit down with the examiner.
What the Letter Is Telling You
Letter 2205 does two jobs at once. It announces the audit, and it defines its scope. Read the letter carefully to identify which tax year (or years) is under review and which forms, schedules, or line items caught the agency’s attention. Common targets include Schedule C business income and expenses, large itemized deductions on Schedule A, and significant capital gains or losses. Knowing exactly which items are at issue lets you focus your preparation rather than trying to reconstruct your entire return.
The letter also indicates whether the IRS is conducting an office examination or a field examination. Office examinations take place at a local IRS facility, where you or your representative walks the auditor through the specific items in question.1Internal Revenue Service. The Examination (Audit) Process Field examinations happen at your home, business, or your tax professional’s office, and tend to involve more complex returns, particularly business entities and taxpayers with extensive financial records.
Call by the Deadline on the Letter
The single most important action is making the phone call before the deadline lapses. If you miss it, the IRS can disallow the questioned items and move straight to assessing additional tax, penalties, and interest without hearing from you. Calling on time keeps you in the conversation and preserves your ability to present documentation before the examiner makes a decision.
Use the call to confirm scheduling, ask clarifying questions about what the examiner wants to see, and request a transfer if the assigned IRS office is inconvenient. The IRS will generally agree to move an office examination to a closer facility if you’ve relocated or your records are stored elsewhere, and field exams typically shift to the location where your books and records are actually kept.2Internal Revenue Service. Internal Revenue Manual Part 4 – Transfer of Returns Open for Examination
Should You Hire a Representative
You have the right to represent yourself, but most taxpayers facing anything beyond a simple correspondence audit benefit from professional help. Attorneys, certified public accountants, and enrolled agents are all authorized to practice before the IRS under Treasury Department Circular 230.3Internal Revenue Service. Office of Professional Responsibility and Circular 230 Tax attorneys handle cases with potential fraud exposure or litigation risk. CPAs are strong on complex financial documentation. Enrolled agents specialize in IRS procedure and often charge less per hour than the other two.
If you hire someone, file IRS Form 2848, Power of Attorney and Declaration of Representative, right away. The form authorizes your representative to speak with the IRS on your behalf, receive confidential tax information, and attend meetings without you present.4Internal Revenue Service. About Form 2848, Power of Attorney and Declaration of Representative Until Form 2848 is on file, the IRS will only discuss your case with you, so any delay in submitting it stalls the process.
Pull Records for the Flagged Items
Start with the specific items Letter 2205 identifies. If the IRS flagged your Schedule C deductions, pull every receipt, invoice, bank statement, and credit card record that supports those expenses. The IRS expects source documents that show who was paid, how much, when, and why the expense was business-related.5Internal Revenue Service. What Kind of Records Should I Keep An invoice describing the service purchased and tying to a specific line on your return is far more persuasive than a bare credit card charge.
Vehicle expenses get special scrutiny. If you claimed car or truck deductions, you need a contemporaneous mileage log showing the date of each trip, your destination, the business purpose, and odometer readings at the start and finish.6Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses A log kept at or near the time of each trip carries far more weight than one reconstructed months later. A weekly log is acceptable as long as it accounts for all use during that week.
Organize everything by expense category and date. Group all office supply receipts together, all travel expenses together, and so on. Arrange each group chronologically and reconcile the totals to the corresponding line items on your return. Also gather contracts, loan agreements, business licenses, and anything else that establishes the legitimacy and business purpose of your expenses. Disorganized records prolong audits and invite the examiner to dig deeper.
Digital Records Are Fine, With Conditions
The IRS accepts scanned receipts and digital accounting files if your storage system produces legible, readable reproductions and includes controls that prevent unauthorized changes.7Internal Revenue Service. Rev. Proc. 97-22 You need to be able to produce hard copies on request. If you use a cloud bookkeeping service, you’re still responsible for making the records available during the exam. Scan your paper receipts, keep the scans clear and organized, and back them up.
At the Examination
The examiner reviews your documentation against what your return reported. Office audits tend to be focused sessions covering the flagged items. Field audits are broader and may involve the examiner spending hours (sometimes multiple visits) going through your business books. Either way, the examiner is looking for documentation that matches the amounts on your return, not for you to explain the tax code.
You have the right to make an audio recording of any in-person interview with the IRS at your own expense and with your own equipment, provided you make an advance request.8Office of the Law Revision Counsel. 26 USC 7521 – Procedures Involving Taxpayer Interviews The statute requires advance notice but does not fix a minimum number of days, so put the request in writing when you schedule the appointment.
Information Document Requests
During or after the initial meeting, the examiner may issue an Information Document Request (IDR) asking for additional documentation.9Internal Revenue Service. New Process for Information Document Requests Treat every IDR as seriously as the original letter. Each has its own deadline, and missing it gives the examiner reason to disallow the expense outright. If you can’t gather everything in time, contact the examiner before the deadline to negotiate an extension.
How the Audit Ends
Every examination closes one of three ways.
No Change
The IRS accepts your return as filed, issues a “no change” letter, and closes the case. Federal law generally prohibits the IRS from inspecting your books more than once for the same tax year unless the agency provides written notice that an additional inspection is necessary.8Office of the Law Revision Counsel. 26 USC 7521 – Procedures Involving Taxpayer Interviews
Agreed Changes
The examiner proposes adjustments and you agree. You sign Form 4549, Report of Income Tax Examination Changes, and receive a bill for the additional tax, penalties, and interest.10Internal Revenue Service. Audit Reconsideration Process for Correspondence Examination Signing waives your right to appeal those findings through the IRS. If you mostly agree but dispute one or two items, you can accept the undisputed adjustments and contest the rest.
Disagreement and the 30-Day Letter
If you disagree with the examiner’s conclusions, the IRS issues a 30-day letter (typically Letter 525) along with the examination report.11Taxpayer Advocate Service. Letter 525 Audit Report/Letter Giving Taxpayer 30 Days to Respond You then have 30 days to formally protest and request a conference with the IRS Independent Office of Appeals.
Protesting and Appealing
How you protest depends on the dollar amount. If the total proposed additional tax and penalties for each tax period is $25,000 or less, you can submit a Small Case Request using Form 12203, a brief statement listing the items you disagree with and why.12Internal Revenue Service. Preparing a Request for Appeals For amounts above $25,000, you must file a formal written protest within the 30-day window, including a statement of facts, the specific items you dispute, the law or authority supporting your position, and a penalties-of-perjury declaration.
The Appeals officer is separate from the examination division and can settle cases based on the hazards of litigation, weighing the likelihood the IRS would prevail in court. Many disputes get resolved at this stage.
The 90-Day Letter and Tax Court
If you skip the protest, lose at Appeals, or don’t respond to the 30-day letter, the IRS issues a statutory Notice of Deficiency. This is the 90-day letter: you have exactly 90 days from the date of the notice to file a petition with the U.S. Tax Court (150 days if the notice is addressed to you outside the United States).13Internal Revenue Service. Understanding Your CP3219N Notice Filing a Tax Court petition is the only way to dispute the tax before paying it. If you miss the 90 days, the IRS assesses the tax and your remaining options require paying first and suing for a refund.
Penalties and Interest
When an audit produces additional tax, the bill rarely stops at the tax itself.
Accuracy-Related Penalty
The most common audit penalty is the accuracy-related penalty under IRC 6662, which equals 20% of the portion of the underpayment caused by negligence or a substantial understatement of income tax.14Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments A “substantial understatement” for individuals means the understatement exceeds the greater of 10% of the tax that should have been on the return or $5,000. If you claimed a Section 199A qualified business income deduction, that 10% threshold drops to 5%.
Civil Fraud Penalty
If the IRS determines any part of your underpayment was due to fraud, the penalty jumps to 75% of the fraudulent portion.15Office of the Law Revision Counsel. 26 USC 6663 – Imposition of Fraud Penalty The IRS carries the burden of proving fraud by clear and convincing evidence, but once it proves any portion was fraudulent, the entire underpayment is presumed fraudulent unless you can show otherwise. The accuracy-related penalty and the fraud penalty cannot stack on the same dollars.
Interest
Interest accrues on unpaid tax from the original due date of the return, not from the date the audit concludes. For individuals, the rate equals the federal short-term rate plus three percentage points, recalculated quarterly.16Internal Revenue Service. Quarterly Interest Rates For the first half of 2026, the individual underpayment rate is 7% (January through March) and 6% (April through June). Interest compounds daily, so a multi-year audit can generate a substantial interest bill even on a modest tax adjustment. Unlike penalties, interest generally cannot be abated.
Penalty Relief
You can request penalty abatement for reasonable cause if you exercised ordinary care and prudence but still couldn’t comply due to circumstances beyond your control. The IRS also offers a first-time penalty abatement waiver if you filed all required returns and had no penalties assessed during the three tax years before the year in question.17Internal Revenue Service. Administrative Penalty Relief First-time abatement applies to failure-to-file and failure-to-pay penalties, not to accuracy-related or fraud penalties. If penalties are proposed during your audit, ask the examiner about abatement before signing any agreement.
How Long the IRS Has to Assess
The IRS generally must assess any additional tax within three years after you filed the return.18Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection If you filed early, the clock starts on the original due date; if you filed late, it starts on the date you actually filed. Three exceptions matter:
- Substantial omission of income. If you left off more than 25% of the gross income reported on your return, the IRS gets six years to assess.18Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection
- Fraud or a false return. No time limit. The IRS can audit at any time.
- Failure to file. The statute never starts running if you didn’t file.
When you receive Letter 2205, check how long ago you filed the return under review. If the three-year window is close to expiring, the IRS may ask you to sign Form 872 to extend the statute. You aren’t required to sign, but refusing may push the examiner to issue a quick and potentially less favorable assessment before time runs out. Talk it through with your representative before agreeing.
When the Taxpayer Advocate Service Can Step In
If the audit is causing genuine financial hardship, the Taxpayer Advocate Service (TAS) may be able to help. TAS is an independent organization within the IRS that assists taxpayers whose problems aren’t being resolved through normal channels. You may qualify if the audit threatens your ability to pay for housing, food, utilities, or transportation, or if the process is causing irreparable financial damage such as income loss or credit harm.19Taxpayer Advocate Service. Can TAS Help Me With My Tax Issue
To request help, submit Form 911, Request for Taxpayer Advocate Service Assistance, by fax, mail, or email.20Taxpayer Advocate Service. Submit a Request for Assistance Describe the hardship in detail. A TAS advocate makes the final determination on eligibility after reviewing your request. If you haven’t heard back within 30 days, contact the Taxpayer Advocate office where you originally sent the form. TAS doesn’t replace your representative or guarantee a particular outcome, but it can move a stalled examination and hold the IRS to its own procedures.