How to Respond to an IRS Correspondence Audit
This guide provides a clear, step-by-step framework for navigating an IRS correspondence audit, from interpreting the notice to final resolution.
An IRS correspondence audit is the most common type of tax examination, conducted entirely by mail or secure online channels. These audits are triggered by automated systems that detect a discrepancy between your tax return and data from third parties, like employers. The IRS will then send a letter questioning specific items on your return. Receiving such a notice does not mean you have made an error; it is a request for clarification, and the process is resolved by providing documents without a face-to-face meeting.
Understanding the Initial IRS Notice
The first step is to carefully read the IRS notice. It will specify the tax year under review, the response deadline, and the exact items being questioned. Common notices include the CP2000 and the CP2501.
A CP2000 notice is generated when income reported by third parties, like on a Form W-2 or 1099, does not match the income on your tax return. This notice is not a formal bill but a proposal detailing adjustments to income, taxes, and potential penalties or interest. You should review this notice carefully, as the IRS’s information may be incorrect.
A CP2501 notice is an initial inquiry to understand a discrepancy before the IRS proposes tax changes. For example, it might question educational expenses claimed for a tax credit. Responding thoroughly to a CP2501 can often prevent a more formal notice with proposed tax changes.
Preparing Your Response Package
Your response package should begin with a concise cover letter. This letter must include your name, Social Security Number or Taxpayer Identification Number, the tax year in question, and the notice number found on the IRS letter. In the letter, you must state clearly whether you agree, partially agree, or disagree with the proposed changes.
If you disagree, provide a point-by-point explanation for each disputed item. Attach copies of all supporting documents, such as:
- Corrected Forms W-2 or 1099
- Bank statements showing specific transactions
- Canceled checks
- Detailed receipts for deductions or credits
Only send copies of documents, as the originals will not be returned by the IRS.
Organize your package with the cover letter on top, followed by the IRS response form and then your supporting evidence. If you include a corrected tax return to illustrate your points, write “FOR INFORMATION ONLY” across the top. This prevents it from being processed as an amended return.
Submitting Your Response to the IRS
You can submit your response package by mail to the address provided on the notice. It is highly recommended to use certified mail with a return receipt. This provides a legal record of when you sent the response and when the IRS received it.
Alternatively, you may be able to submit your response by fax or through the IRS’s secure online Document Upload Tool. The correct fax number will be on the notice, which will also provide a unique access code and web address if eligible for online submission. Digital submission is often the fastest method and provides immediate confirmation of receipt. Always keep a complete copy of your response package for your records.
After You Respond
After you respond, the IRS may take 90 days or more to review your information and issue a determination. One possible outcome is a “no change” letter, which means the IRS accepted your explanation and documentation, closing the audit with no adjustments.
If you agreed with the changes or the IRS accepts your partial agreement, you will receive a letter confirming the adjustments and detailing the final amount owed with payment instructions. The IRS might also determine your response was insufficient and send a request for additional information, continuing the audit.
If you do not respond or the IRS disagrees with your position, it will issue a Statutory Notice of Deficiency, or “90-day letter.” This legally significant document is sent by certified mail and gives you 90 days to either agree to the assessment or file a petition with the U.S. Tax Court. Filing a petition allows you to challenge the determination without first paying the disputed amount, but the 90-day deadline is strict and cannot be extended.