IRS audit checklist: the steps and the documents to request

Every audit starts by mail. The IRS notifies a taxpayer selected for audit by mail and does not start an audit by telephone (IRS, IRS audits). A call claiming to open an audit is a scam signal, so tell clients to forward every IRS letter to you the day it arrives.

The letter tells you the type of exam. The IRS audits either by mail or in person (IRS, IRS audits). An in-person exam may be at an IRS office or, in a field audit, at the taxpayer’s home, business or representative’s office (IRS, IRS audits). A mail audit asks for information about certain items, such as income, expenses and itemized deductions (IRS, IRS audits).

Note the response date in your calendar the same day. If you do not respond by it, the IRS completes the audit and sends a report with its proposed changes (IRS, IRS audits).

Clients always ask why them. The IRS names two methods: a statistical formula that compares the return with norms for similar returns, and related examinations of partners or investors whose returns were picked (IRS, IRS audits). A refund alone is not necessarily a trigger, and an amended return does not change how the original was selected (IRS, IRS audits).

To act for the client, file a power of attorney first. Form 2848 is the IRS form a taxpayer signs so an attorney, CPA, enrolled agent or other authorized person can represent them (IRS Publication 556). Put your CAF number on it; the IRS assigns one per representative and you reuse it on later powers of attorney (Instructions for Form 2848).

For a mail audit, you can usually get a one-time 30-day extension by faxing a written request to the number on the letter (IRS, IRS audits). For an in-person exam, ask the assigned auditor (IRS, IRS audits).

The years can grow. Generally, the IRS includes returns filed within the last three years in an audit, may add years if it finds a substantial error, and usually goes back no more than six years (IRS, IRS audits). So ask the client for the returns of the adjacent years before the first meeting.

Request records for the items named in the letter, not the whole year. The law requires taxpayers to keep the records used to prepare a return for at least three years from the filing date (IRS, IRS audits). If the client cannot produce them, they may owe more tax and penalties (IRS Publication 17).

In an office or field exam, the request arrives as an Information Document Request, Form 4564, sent with the first letter or the appointment confirmation (IRM 4.10.2, Pre-contact responsibilities). Answer it item by item, in the order the examiner numbered, and say plainly when a record does not exist.

Match each item to a document that proves both the amount and the purpose. A substantiation gap is an item on the return with no record behind it, and finding those gaps early is the main point of the checklist. For example, a card statement shows that a client paid for a meal, but not who attended or why.

• Income: every Form W-2 and 1099, bank statements for all accounts, and a deposit analysis that explains transfers and loans.
• Business expenses: invoices and proof of payment for each line on Schedule C, plus contracts for large payments.
• Vehicle and travel: a mileage log with dates, places and purpose, and travel receipts.
• Itemized deductions: Form 1098, property tax bills, donation acknowledgments, medical receipts.
• Credits and dependents: the records listed for that credit, such as school or residency records for a child.

Send copies, never originals, and keep an index of what you sent. For any delivery service, ask for confirmation that the IRS received the response (IRS, IRS audits). The IRS accepts some electronic records, so ask the auditor which formats work (IRS, IRS audits).

If you agree with the findings, the client signs the examination report or a similar form (IRS, IRS audits). That is usually Form 4549, the report of income tax examination changes, or Form 870, a waiver of restrictions on assessment; once signed, it is the basis for the assessment (IRM 4.10.8, Report writing). If you disagree, you can request a conference with an IRS manager, ask for mediation, or file an appeal if enough time is left on the statute of limitations (IRS, IRS audits). The Taxpayer Bill of Rights is the IRS list of rights that includes the right to challenge the IRS’s position and the right to retain representation (IRS, Taxpayer Bill of Rights).

1. Log the letter: year, items, exam type, response date.
2. File Form 2848 and request any extension in writing.
3. Pull the filed return and the IRS transcript for the year under exam.
4. Send the client a document request limited to the items in the letter.
5. Review every document for gaps before anything goes to the IRS.
6. Respond by the due date, with an index and proof of delivery.
7. Review the report, then sign, request a conference, or appeal.
8. If the examiner asks for Form 872 to extend the assessment period, read the attached notice: the client may refuse, or limit it to some issues or to a set date (IRM 25.6.22, Extension of assessment statute).
9. Calendar the 30-day letter: the client generally has 30 days from its date to accept or appeal, and an appeal needs a written protest unless the small case request applies (IRS Publication 556).
10. Calendar the 90-day letter, the notice of deficiency: a Tax Court petition is due within 90 days, or 150 days if addressed outside the United States (IRS Publication 556).

• IRS, IRS audits: Notice by mail, mail and in-person audits, extensions, years covered, record retention, responding, agreeing and disagreeing with findings.
• IRS Publication 556: Who may represent a taxpayer in an examination and the written authorization required, such as Form 2848.
• IRS Publication 17: Without the correct documents, a taxpayer may have to pay additional tax and be subject to penalties.
• Instructions for Form 2848: The IRS assigns each representative a CAF number, to be used on all future powers of attorney.
• IRM 4.10.2, Pre-contact responsibilities: Examiners send Form 4564, Information Document Request, with the initial contact letter in office exams and with the appointment confirmation in field exams.
• IRM 4.10.8, Report writing: Form 4549 reports the examination changes and Form 870 is a waiver of restrictions on assessment; a signed audit report is the basis for assessment.
• IRM 25.6.22, Extension of assessment statute: Form 872 extends the time to assess tax, and the taxpayer has the right to refuse the extension or limit it to particular issues or a particular period.
• IRS, Taxpayer Bill of Rights: Includes the right to challenge the IRS’s position and be heard, to appeal, and to retain representation.