Many taxpayers underestimate IRS correspondence audits because they happen by mail. There is no revenue agent at your door, no in-person interview, and no intimidating conference room. Instead, there is a letter asking for clarification or documentation.
This leads to the most common and costly mistake: treating a correspondence audit as informal or low-risk.
In reality, correspondence audits are formal IRS examinations, governed by the same statutes, Internal Revenue Manual provisions, and penalty frameworks as field audits. They are often the first step in a larger enforcement process, and when mishandled, they frequently escalate into full audits, expanded examinations, or penalty assessments.
📘 Reference: IRS Examination (Audit) Process
What an IRS Correspondence Audit Actually Is?
An IRS correspondence audit is a civil examination conducted entirely by mail (or online portals). The IRS uses correspondence audits to resolve issues it believes can be decided through documents alone.
💡Important: A correspondence audit is not a “pre-audit” or “review.” It is a real audit, and the IRS’s findings are legally binding unless challenged.
📘 Reference: IRS Correspondence Examinations
Why Taxpayers Underestimate Correspondence Audits?
Taxpayers often assume correspondence audits are minor because there is no human interaction. This assumption leads to rushed responses, incomplete documentation, and overly casual explanations.
In reality, correspondence auditors are trained to evaluate documents strictly. They do not see your tone, intent, or frustration—only what is submitted. Missing or unclear documentation is often interpreted as failure to substantiate, not as misunderstanding.
📘 Reference: IRS Audit Selection Overview
The Most Common Issues Raised in Correspondence Audits
Correspondence audits most often involve issues the IRS believes can be resolved through document matching or substantiation. These include underreported income, questioned deductions, credits, and filing status errors.
Because these audits rely heavily on automated systems, they often begin with assumptions that are incomplete or incorrect. The burden is on the taxpayer to rebut those assumptions with clear, organized proof.
Failure to respond adequately often results in automatic assessments.
📘 Reference: IRS CP2000 Overview
What Most Taxpayers Get Wrong About Responding?
The most common mistake taxpayers make is responding too quickly and without strategy. Many assume that providing “something” is better than providing nothing. In practice, partial or poorly organized submissions often do more harm than good.
Another frequent error is explaining rather than documenting. Correspondence auditors are instructed to rely on documentary evidence, not narratives. Explanations without proof are rarely persuasive.
Taxpayers also frequently volunteer unnecessary information, inadvertently expanding the scope of review.
How Correspondence Audits Escalate Into Larger Audits?
When documentation is insufficient or inconsistent, correspondence auditors may refer the case for expanded examination. This can mean additional issues, additional years, or conversion to a field audit.
Escalation often occurs quietly. The taxpayer simply receives a new letter or request—sometimes months later—without realizing the audit has changed scope.
Once an audit leaves the correspondence unit, it becomes far more resource-intensive and difficult to control.
Why Correspondence Audits Can Trigger Penalties?
Correspondence audits frequently result in penalties because they are document-driven. If substantiation is lacking, the IRS often asserts accuracy-related penalties automatically.
Many taxpayers assume penalties will be waived if the error was “honest.” In practice, penalty relief requires a clear reasonable-cause showing, which must be properly framed and documented.
📘 Reference:
When Correspondence Audits Become High-Risk?
While most correspondence audits remain civil, some become high-risk when patterns emerge. Repeated issues, large dollar amounts, or inconsistencies across years may raise concerns about intent.
At that point, the correspondence audit becomes a fact-gathering tool rather than a simple mismatch resolution. Statements and documents submitted can later be used in expanded audits or investigations.
This is where early legal strategy becomes critical.
Appeals Rights and Missed Opportunities
One of the biggest mistakes in correspondence audits is failing to preserve appeal rights. Many taxpayers assume they can “fix it later.” In reality, failure to respond properly or timely can forfeit administrative appeal opportunities.
Once the IRS issues a Notice of Deficiency, the case becomes far more complex and expensive to resolve.
📘 Reference:
Why CPAs Alone Are Often Not Enough?
Many taxpayers rely on CPAs to handle correspondence audits. While CPAs are excellent at compliance and documentation, they do not provide attorney-client privilege and may become witnesses if the audit escalates.
CPAs are also ethically constrained from advancing certain legal arguments or advising clients on criminal exposure. In high-risk correspondence audits, this limitation matters.
When issues involve intent, repeated discrepancies, or potential fraud indicators, relying solely on a CPA can expose the taxpayer—and sometimes the CPA—to unnecessary risk.
When to Hire a Tax Attorney in a Correspondence Audit?
Many taxpayers wait too long to hire an attorney, assuming legal counsel is only needed for in-person audits. In reality, the best time to hire a tax attorney is before responding to a correspondence audit when:
The dollar amount is significant, multiple years are involved, or the issue suggests underreported income or inflated deductions. Legal counsel is also critical when documentation is incomplete, records are missing, or explanations are complex.
An attorney evaluates not just how to respond, but whether and how to respond, what to disclose, and what to withhold. This strategic control is often the difference between resolution and escalation.
📘 Reference: IRS Form 2848, Power of Attorney
Need help with a similar issue? Contact our firm today for a consultation.
An IRS correspondence audit is still an IRS audit—and how you respond can determine whether the matter ends quietly or escalates.
Pelham PLLC represents taxpayers in correspondence audits, expanded examinations, and high-risk audit defense. We step in early to control exposure, protect privilege, and resolve matters efficiently.
Contact Pelham PLLC for confidential IRS audit defense before a simple letter becomes a serious problem.
FAQs
Is a correspondence audit less serious than a field audit?
No. The legal consequences are the same.
Can correspondence audits expand into full audits?
Yes, frequently.
Should I respond on my own?
Only if the issue is truly simple and low-risk.
When should I hire a tax attorney?
Before responding when risk, penalties, or missing records are involved.
