When Does the IRS Send Audit Letters?

An Internal Revenue Service (IRS) audit letter is an official communication indicating your tax return has been selected for examination. This does not automatically imply wrongdoing, as some returns are chosen randomly. Its purpose is to verify the accuracy of reported income, deductions, and credits. Receiving one requires prompt attention and careful review.

Typical Issuance Timeframes

The IRS generally has a three-year window to initiate an audit from the later of the tax return’s due date or filing date. For instance, if a 2023 tax return was filed on April 15, 2024, the IRS typically has until April 15, 2027, to begin an audit. If an extension was requested, the three-year period starts from the extended filing date. This timeframe is legally known as the statute of limitations.

Most audits of individual returns are initiated within 18 to 26 months after filing. This helps ensure the audit process concludes within the three-year legal limit. However, this period can extend to six years for a substantial understatement of income, typically over 25% of gross income. There is no statute of limitations if a tax return was never filed or if fraud is suspected.

The timing of an audit letter also depends on the complexity of the return and the specific issues examined. Audits focusing on certain tax credits may begin a few months after filing, while those involving questionable items might start within a year. Field audits, the most comprehensive, generally begin later in the audit window. Audit letters are sent throughout the year, not just immediately following tax season.

Reasons for Receiving an Audit Letter

Audit letters often stem from discrepancies or unusual patterns on a tax return. A common trigger is a mismatch between income reported by the taxpayer and information received by the IRS from third parties. For example, if amounts on your return do not align with W-2s from employers or 1099s from financial institutions, your return can be flagged for review.

Unusual or excessive deductions or credits disproportionate to income can also draw IRS attention. This includes significant charitable donations when income is low or unusually high business expenses. Similarly, consistent business losses, particularly on Schedule C, might face scrutiny, as the IRS looks for activities that demonstrate a reasonable expectation of profit.

Returns with high incomes or complex financial transactions, such as foreign accounts or significant cryptocurrency dealings, may also have a higher likelihood of examination. While some returns are selected randomly for compliance, many audits are initiated due to specific red flags identified by IRS automated systems. Additionally, if connected to an individual or business already under audit, your return might also be examined.

Common Types of Audit Letters

The IRS uses different letters to initiate audits, each indicating the nature and scope of the examination. One common type is the CP2000 notice, an automated inquiry about underreported income, not a formal audit. This notice is issued when IRS computer systems detect discrepancies between income reported on a tax return and information supplied by third parties, such as employers or banks. CP2000 notices typically propose tax liability changes and are usually sent within one to two years of filing.

For detailed examinations not resolvable by mail, the IRS may send letters requesting an office audit. These audits require taxpayers to visit a local IRS office with supporting documentation for specific items on their return, such as itemized deductions or business profits. Office audit letters, which may include forms like Letter 501, 503, or 507, are sent when issues necessitate an in-person review.

The most comprehensive examination is a field audit, typically reserved for complex returns or businesses. An IRS agent conducts these audits at the taxpayer’s home, business, or representative’s office. Letters initiating field audits are sent when a more in-depth review of financial records is required. Regardless of type, the audit letter specifies the tax year under review and the issues the IRS wishes to examine.