The IRS conducts audits to verify the accuracy of tax returns and ensure compliance with federal tax law.
While the word audit can make anyone uneasy, most audits are routine and resolve quickly when handled properly.
Not all IRS audits are the same. The IRS uses three main types of audits—correspondence, office, and field—depending on the complexity of your return and the size of the potential adjustment. Knowing which type you’re facing helps you prepare the right documents, set realistic expectations, and protect your rights throughout the process. According to IRS Publication 556, every audit begins with a letter explaining which items are under review and how to respond.
This guide breaks down each audit type, explains how the process works, and shows you what to do if you receive a notice.
Know Why the IRS Initiates Audits
Audits aren’t random. They typically result from one of these situations:
- Information mismatch: Your income reports (Forms W-2, 1099, K-1, etc.) don’t match IRS records.
- Unusual deductions or credits: Expenses or charitable donations appear too high for your income bracket.
- Related party examination: Someone connected to you (a business partner or employer) is under audit.
- Random research: Some returns are selected for statistical analysis through the IRS National Research Program.
Before panicking, review the notice carefully. Many audits end without additional tax due once the taxpayer provides documentation.
The Three Types of IRS Audits
1️⃣ Correspondence Audit — By Mail
Purpose:
To verify specific items on your return, such as income or deductions.
How it works?
You’ll receive a Letter 566 or similar notice asking for documents (such as receipts for charitable donations or proof of income). All communication happens by mail. You can send copies—not originals—of your records.
Typical issues reviewed:
- Missing Form 1099 or W-2.
- Questionable deductions or credits.
- Earned Income Tax Credit (EITC) verification.
- Business expenses with missing proof.
💡Best Practice:
Respond promptly with organized documentation and keep copies of everything you send.
📘 Learn more: IRS Audits by Mail
2️⃣ Office Audit — In-Person at an IRS Office
Purpose:
Examine several issues on your return or multiple years at once.
How it works?
The IRS schedules a meeting at a local office (via Letter 2205 or Appointment Letter 3572). You attend a scheduled meeting at the nearest IRS office. You meet with an examiner who reviews receipts, ledgers, or explanations supporting the entries on your tax return.
What to bring:?
- IRS letter and ID.
- Organized records (bank statements, ledgers, receipts).
- Bank statements, receipts, ledgers, and mileage logs.
- Proof of deductions or credits (e.g., charitable donation receipts, medical bills).
- Representation (if desired).
💡 Best Practice:
You may authorize a representative to attend on your behalf using Form 2848 Power of Attorney.
📘 Learn more: IRS In-Person Audits
3️⃣ Field Audit — At Your Home or Business
Purpose:
Review complex returns or large business operations.
How it works?
An IRS Revenue Agent visits your home, place of business, or accountant’s office. The agent examines income records, business ledgers, assets, and expenses. Field audits are the most comprehensive and may cover multiple tax years or entities.
What the IRS looks for?
- Unreported income (cash sales, 1099 omissions).
- Overstated deductions or non-business expenses.
- Payroll tax errors or misclassified employees.
- Asset purchases and depreciation schedules.
💡Best Practice:
- Have your tax professional present.
- Organize books and records by category and year.
- Answer questions honestly but briefly — don’t volunteer extra information.
📘 Learn more: IRS Field Audit Guide
Understand the Differences at a Glance
| Audit Type | Where It Happens | Scope of Review | Who Conducts It |
|---|---|---|---|
| Correspondence | By mail only | Specific items | Tax Examiner |
| Office | IRS office | Several return issues | Tax Compliance Officer |
| Field | Your home or business | Comprehensive review | Revenue Agent |
How to Prepare for Any Type of Audit?
- Read the letter carefully. Identify exactly what the IRS is requesting.
- Gather and organize records by year and category (income, deductions, expenses).
- Respond promptly and confirm receipt with certified mail or fax.
- Don’t send originals. Only copies of records should be provided.
- Stay professional and avoid over-explaining or volunteering extra information.
- Hire representation if you’re unsure how to respond or face large balances.
📘 Reference: IRS Publication 583 — Recordkeeping
What the IRS Can (and Cannot) Do During an Audit?
What they can do:
- Request records and explanations for income and deductions.
- Interview you or your representative.
- Inspect your books and records at a reasonable time and place.
What they cannot do:
- Demand immediate payment before the audit is final.
- Harass or intimidate you.
- Deny your right to representation or appeal.
These rights are outlined in the Taxpayer Bill of Rights.
Common Mistakes to Avoid
Ignoring IRS notices: This leads to automatic adjustments and penalties.
Over-explaining: Answer only what’s asked — additional information may open new issues.
Disorganized records: Messy paperwork slows resolution and creates doubt.
Admitting errors without context: Let your representative frame the facts strategically.
Missing deadlines: File for extensions if needed, but never let dates lapse.
After the Audit — Outcomes and Next Steps
Once the IRS completes its review, you’ll receive an Examination Report (Form 4549) outlining proposed changes. Possible outcomes:
- No Change: Your return was accepted as filed.
- Agreed: You owe additional tax and sign the report to finalize it.
- Disagreed: You can appeal through the IRS Office of Appeals within 30 days.
If you don’t respond, the IRS issues a Notice of Deficiency (CP3219A) giving you 90 days to petition Tax Court.
📘 Learn more: IRS Appeals Overview
Audit Prevention Tips for the Future
- File accurately and on time. Avoid math errors and report all income forms.
- Be consistent. Match income and deduction patterns year to year.
- Avoid round numbers. Use exact amounts based on receipts and records.
- Document everything. Maintain detailed records for 3–7 years.
- Seek professional help. Tax attorneys or CPAs can review your return before filing to reduce audit risk.
📘 IRS Resource: Audit Techniques Guides (ATGs)
When to Seek Professional Help?
Hire professional representation immediately if:
- You’ve received a field audit notice.
- The IRS suspects fraud or unreported income.
- You owe a large balance or face penalties.
- You own a business with employees or complex returns.
A tax attorney can communicate directly with the IRS, negotiate penalties, and ensure the audit remains civil and fact-based.
Need help with a similar issue? Contact our firm today for a consultation.
Every IRS audit is different, but knowledge and organization are your best defenses. Understanding the difference between correspondence, office, and field audits can help you take the right steps from the start. Each type requires a different level of preparation — but all demand prompt, organized responses.
If you’ve received an audit letter or notice, contact Pelham PLLC today. Our experienced tax attorneys represent individuals and small businesses throughout every stage of the audit process — from document preparation to appeals.
📘 Official Resource: IRS Understanding Your Notice or Letter
FAQs
What is the most common type of IRS audit?
The most common audit is a correspondence audit conducted by mail for minor issues like missing income statements or credit verification.
How long does an IRS audit take?
It depends on complexity. Mail audits take a few months; field audits can take over a year.
Should I hire a tax attorney for an IRS audit?
Yes — especially for office or field audits. A tax attorney can handle communications and protect you from inadvertent errors or exposure.
What should I do if I disagree with the audit findings?
File an appeal within 30 days of the IRS report or petition Tax Court within 90 days of the Notice of Deficiency.
Will an IRS audit hurt my credit score?
No. Audits themselves don’t affect credit, but unpaid tax debts resulting from an audit may lead to liens that impact credit.
