IRS 30-Day Letter: What It Is and How to Respond
A 30-day letter from the IRS isn't a bill, but a proposal. Learn how to interpret this notice and formulate a clear, effective response.
An IRS 30-day letter is a formal communication that proposes changes to your tax return following an audit or examination. This notice, often a Letter 525, is not a bill but a preliminary assessment from the IRS indicating they believe you owe more tax. It outlines the specific adjustments the agency is proposing and provides a detailed explanation in an accompanying Revenue Agent’s Report (RAR). The letter’s name comes from the 30-day period it grants you to review the proposed changes and decide on a course of action, offering an opportunity to resolve the disagreement at an early stage.
Understanding Your Response Options
Upon receiving a 30-day letter, you are presented with three distinct paths. The first option is to agree with the proposed changes. This involves accepting the IRS examiner’s findings and the resulting tax liability. Choosing this path closes the audit and moves the process to the payment phase.
A second option is to disagree with the findings and pursue an appeal. This path is for taxpayers who believe the examiner’s adjustments are incorrect. It involves formally notifying the IRS of your disagreement and requesting a conference with the IRS Independent Office of Appeals, which is separate from the auditing division and offers an impartial review.
The final choice is to do nothing. This inaction is interpreted as a disagreement and results in the IRS issuing a Statutory Notice of Deficiency, which is explained further below.
How to Prepare Your Response
The steps to prepare your response depend on whether you agree or disagree. If you agree with the proposed adjustments, the process is straightforward. The 30-day letter package includes Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. Signing this form signifies your consent to the additional tax and waives your right to take the case to Tax Court.
If you disagree with the findings, you must prepare a formal written protest to request a conference with the IRS Independent Office of Appeals. This document is your primary tool for challenging the examiner’s report. Your protest must include:
- A statement that you are appealing the findings and wish to have your case considered by the Office of Appeals.
- Your name, address, TIN, and the relevant tax periods.
- A list of the specific adjustments you dispute.
- A statement of facts outlining your version of events, and a statement of the law or other authority you are relying on.
- A declaration signed under penalties of perjury that the facts are true.
Submitting Your Response to the IRS
Whether you are sending a signed Form 870 or a formal protest, the response must be mailed to the specific IRS address provided in the 30-day letter. It is important to use the address from the letter, as sending it to a general IRS address could cause significant delays or result in the response being misplaced.
If you mail the signed Form 870, you have officially agreed to the assessment. The IRS will process the waiver, formally assess the additional tax, and send you a bill for the amount due, including any accrued interest and penalties. At that point, the audit is concluded.
Submitting a formal protest letter initiates a different process. Upon receiving your protest, the examining agent’s office will review it. If it meets the requirements, your case file will be forwarded to the IRS Independent Office of Appeals. You will then be contacted by an Appeals Officer to schedule an informal conference.
Consequences of Not Responding
Failing to respond to a 30-day letter within the specified timeframe has direct consequences. This inaction forfeits your opportunity for an administrative hearing with the Office of Appeals, as the IRS will assume you disagree and escalate the case.
The direct result is the issuance of a Statutory Notice of Deficiency, more commonly known as a 90-day letter. This legally mandated notice formally asserts the IRS’s determination of a tax deficiency and is a prerequisite for taking your case to the U.S. Tax Court.
Once the 90-day letter is issued, you have a strict 90-day period to either pay the deficiency or file a petition with the U.S. Tax Court. If you fail to act within this window, you lose the right to contest the matter in Tax Court before paying. The IRS will then proceed with assessment and collection actions.