Inside an IRS Audit: From First Letter to Final Report
What each stage of an examination looks like, the documents the IRS asks for, your rights along the way, and how disagreements get resolved.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
An IRS audit starts with a letter, never a phone call. The examiner requests documents for specific items, reviews them, and issues a report proposing changes or none. You can agree, provide more support, request a manager conference, appeal within 30 days, or — after a notice of deficiency — petition the Tax Court before paying anything.
On this page
What are the stages?
| Stage | What happens | Your deadline |
|---|---|---|
| Opening letter | Identifies the return, the items under review, and the audit type | Respond by the date given, usually 30 days |
| Information document request | Lists the records the examiner needs | Dates set in the request; extensions are common |
| Examination | Review of records; interviews in office and field audits | — |
| Examiner's report (Form 4549) | Proposed changes with tax, penalties, and interest; or a no-change letter | Sign if you agree |
| 30-day letter | Right to appeal to the IRS Independent Office of Appeals | 30 days |
| Notice of deficiency (90-day letter) | Formal notice of the proposed tax; the IRS cannot assess while the petition period runs | 90 days to petition the Tax Court (150 if addressed outside the U.S.) |
| Assessment and collection | If no petition, tax is assessed and billed | — |
What does the examiner want to see?
For income: bank statements, deposit records, invoices, and 1099s. For deductions: receipts, mileage logs, meal notes, payroll records, and contracts. Provide organized copies for the items asked, with a brief explanation. Volunteering unrelated records can widen the audit.
What are your rights?
You can be represented by a professional under Form 2848 and need not meet the examiner yourself. You can record an in-person interview if you notify the examiner in writing 10 days in advance. You can ask for an extension, request a manager conference if you disagree with the examiner, and appeal before any assessment. The examiner may ask you to extend the assessment period on Form 872 if time is running short; you can decline or limit it, though declining usually triggers a notice of deficiency.
How do penalties come into it?
Examiners propose accuracy-related penalties of 20 percent where an underpayment results from negligence or a substantial understatement. A reasonable-cause defense — good records, reliance on a qualified adviser with full disclosure — removes the penalty in many cases. First-time abatement applies to failure-to-file and failure-to-pay penalties, not accuracy penalties.
How long does it take?
Correspondence audits often close in a few months; field audits can run a year or more. The IRS aims to finish within the three-year assessment period, which is why extension requests arrive near the end.
Frequently asked questions
Will one audit lead to audits of other years?
If the examiner finds the same issue is likely in adjacent years, the audit can be expanded, usually to the open years.
Should I file an amended return when I know there is an error?
Once a year is under examination, give the correction to the examiner rather than filing Form 1040-X.
Can the IRS audit a business return and the owner's personal return together?
Yes. Pass-through adjustments flow to the owners, and related returns are often examined together.
What if I cannot find a receipt?
Reconstruct the expense with bank records, vendor statements, or a credible written explanation. Courts allow reasonable estimates for some expenses, but not for travel, meals, vehicles, and gifts, which require specific records.
Official sources
The IRS explains: “Should your account be selected for audit, we will notify you by mail. We won't initiate an audit by telephone.” — Internal Revenue Service, IRS audits, https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits
The IRS explains: “You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States).” — Internal Revenue Service, Publication 556 (09/2013), Examination of Returns, Appeal Rights, and Claims for Refund, https://www.irs.gov/publications/p556
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk prepares the examination file with you, keeps the documents the examiner requests organized, and tracks every deadline. See pricing or book a free fit call.
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