If you just opened an envelope from the IRS that says your return has been selected for examination, you are about to learn how an IRS audit actually works. The honest answer: it depends on which type of audit you’re facing, but the stages are predictable, and what you do in the first two weeks matters more than almost anything else that follows.
Stage 1: The Notice Arrives
An IRS audit always starts with a letter. The IRS does not initiate audits by phone, text, or email — if you got a call, it’s either a scam or a collections matter, not an audit. The letter will tell you three critical things: which tax year is under examination, which line items the IRS is questioning, and what type of audit it will be (correspondence, office, or field).
Before you do anything else, calendar every deadline in the notice. The most important one is the response date, usually 30 days from the letter’s date. Then pull your IRS account transcripts so you can see exactly what the IRS sees — reported wages, 1099s, payments, prior assessments. Examiners work from the transcript, and you should too.
Stage 2: Information Document Request
The examiner will issue an Information Document Request (an IDR, sometimes Form 4564) listing every document they want. For a Schedule C audit, that usually means bank statements, receipts, mileage logs, and any 1099s you issued. For an audit of charitable deductions, it means contemporaneous written acknowledgments from the charity, appraisals for property gifts over $5,000, and proof of payment.
Two pieces of advice on the IDR: respond to what was actually asked, not more, and never hand the examiner raw bank statements without first reconciling deposits yourself. Examiners use a bank-deposit analysis to reconstruct income, and any deposit you can’t identify becomes presumed income.
Stage 3: The Examination Itself
What “the audit” actually looks like depends on the type. A correspondence audit is all by mail — you send documents in, the IRS reviews them, and you may never speak with anyone. An office audit means going to a local IRS office for a sit-down interview, usually a few hours, focused on a narrow set of issues. A field audit means an IRS revenue agent visits your home or place of business, reviews records on site, and typically examines the entire return rather than specific line items.
During the examination the agent may ask follow-up questions, request additional records, and propose adjustments. You have the right to be represented at every step — by a tax attorney, CPA, or enrolled agent — and you have the right to record any in-person meeting if you give the IRS 10 days’ notice.
Stage 4: The Proposed Adjustments
When the examiner finishes, you’ll receive a Form 4549 (Income Tax Examination Changes) or a similar report showing the proposed adjustments, additional tax, and penalties. You can agree, partially agree, or disagree. If you agree, you sign, the audit closes, and a bill is generated.
If you disagree, the IRS will send a 30-day letter giving you the right to protest to the IRS Office of Appeals. Appeals is staffed by people separate from the examination function whose explicit job is to settle cases based on the hazards of litigation — meaning if your case has a realistic chance of being lost by the IRS in court, Appeals is supposed to factor that in.
Stage 5: Closing the Audit
If you don’t protest within 30 days, the IRS issues a Statutory Notice of Deficiency — the “90-day letter.” That is your last chance to take the case to the U.S. Tax Court without first paying the proposed tax. Miss the 90-day deadline and the assessment becomes final, after which your only options are paying and suing for a refund in District Court or Court of Federal Claims, or pursuing collection alternatives.
Most audits close at the examination level or at Appeals. Roughly 80% of cases that go to Appeals settle there. The cases that don’t settle are usually those involving disputed facts (was this really a business expense?) rather than disputed law.
What to Do This Week
If you’re holding an audit notice right now: calendar the response deadline, pull your IRS transcripts, gather the documents listed in the IDR, and decide whether to hire representation. The earlier in the process you make those decisions, the more leverage you keep.
Facing an IRS Audit Right Now?
Win Your IRS Audit is a 208-page step-by-step playbook written by a former IRS attorney and appeals officer. It walks you through exactly how to defend yourself — from the first notice all the way through Appeals or Tax Court.