IRS Audit Guide

Three types of IRS audit and what each means for you

The IRS conducts three types of examinations, each with different scope and procedures. A correspondence audit is the most common and least invasive: the IRS sends a letter (usually CP2000, CP2501, or Letter 566) asking you to verify specific items by mail. You never meet an examiner face-to-face. Common triggers include unreported 1099 income, charitable deduction discrepancies, and Earned Income Tax Credit claims.

An office audit (also called an office examination) requires you to appear at a local IRS office with specific records. The IRS schedules an appointment and tells you exactly which items they want to examine. These tend to focus on two or three issues rather than your entire return.

A field audit is the most comprehensive. A revenue agent comes to your home, place of business, or your representative's office to examine your books and records. Field audits are more common for businesses, high-income individuals, and returns with complex transactions. The revenue agent has broad discretion to expand the scope of the examination if they discover issues beyond the original audit plan. Under IRM 4.10.2.6, the examiner must issue a written audit plan, and you are entitled to request a copy.

The IRS must follow standardised examination procedures and provide you with written notice of the issues under examination. (IRM 4.10.2 (Examination Planning and Control); IRM 4.10.3 (Examination Techniques))

CP2000: the automated mismatch notice — what it is and how to respond

The CP2000 is not an audit — it is an automated underreporter notice generated when income reported by a third party (on a 1099-NEC, 1099-K, 1099-B, W-2, or similar) does not match what you reported on your return. The IRS computer matches third-party information returns against your filed return and generates a CP2000 when it finds a discrepancy. CP2000 notices are extremely common for self-employed filers — the most frequent triggers are: a 1099-NEC received but not reported on Schedule C; gross proceeds on a 1099-B reported without a corresponding cost basis; 1099-K platform payments not reconciled against Schedule C income; and deferred or stock-settled compensation not reflected on the W-2.

A CP2000 is a proposed adjustment, not a bill. You have 60 days from the notice date to respond. Your options are: (1) Agree and pay the proposed amount plus interest; (2) Agree in part — if the IRS number includes income you did report under a different line, or if you have offsetting deductions not on the original return; (3) Disagree — send a written response with documentation explaining why the proposed adjustment is incorrect. Do not ignore a CP2000 — if you do not respond, the IRS issues a Statutory Notice of Deficiency (90-day letter) and the proposed amount becomes assessed tax.

The most common resolution path: if the discrepancy is because you received a 1099-NEC that was already included in your Schedule C gross receipts, respond in writing with a brief explanation and a copy of your Schedule C. No additional tax is owed. Always respond by certified mail and retain the certified mail receipt as proof.

A CP2000 is a proposed adjustment from automated third-party matching — not an audit and not a bill. You have 60 days to respond in writing. Ignoring it results in the amount being assessed. Most CP2000s for self-employed filers are resolved by documenting that the income was already reported. (IRC §6213 (90-day letter and Tax Court petition); IRC §6501 (statute of limitations — IRS generally has 3 years from filing date to assess additional tax); IRS Publication 2104 (Examination of Returns); IRS CP2000 Notice (automated underreporter program))

Statute of limitations: how far back the IRS can audit

The IRS generally has three years from the date you filed your return (or the due date, whichever is later) to initiate an audit. This is the assessment statute expiration date (ASED) under IRC Section 6501(a). If you filed your 2023 return on 15 April 2024, the IRS generally has until 15 April 2027 to begin an audit.

There are critical exceptions. If you omitted more than 25% of your gross income, the statute extends to six years under IRC Section 6501(e)(1)(A). If you filed a fraudulent return or failed to file at all, there is no statute of limitations, and the IRS can audit you at any time under IRC Section 6501(c). Filing an amended return does not restart the statute of limitations on the original return, but the IRS has 60 days or the remaining original statute period (whichever is longer) to assess additional tax based on items changed on the amended return.

Be cautious about signing Form 872 (Consent to Extend the Time to Assess Tax). The IRS may ask you to extend the statute if the audit is taking longer than expected. You are not required to sign, but refusing may cause the examiner to issue a statutory notice of deficiency based on incomplete information. Your representative can advise on whether a limited or open-ended extension is appropriate.

The IRS has 3 years to audit most returns, 6 years if more than 25% of gross income was omitted, and unlimited time for fraud or non-filing. (IRC Section 6501(a), 6501(c), 6501(e)(1)(A))

Your rights during an audit: the Taxpayer Bill of Rights

The Taxpayer Bill of Rights, codified in IRC Section 7803(a)(3) and detailed in IRS Publication 1, gives you ten fundamental rights in every interaction with the IRS. During an audit, the most critical are: the right to be informed (you must receive clear explanations of what the IRS is doing and why), the right to quality service, the right to pay no more than the correct amount of tax, the right to challenge the IRS's position and be heard, the right to appeal, the right to retain representation, and the right to a fair and just tax system.

In practical terms, this means the examiner must explain every adjustment they propose and give you the opportunity to respond. You can request a different examiner if you believe the current one is biased. You can record any in-person meeting if you provide 10 days' advance written notice under IRC Section 7521(a). You can have a representative (CPA, enrolled agent, or attorney) handle the entire audit without you being present, using Form 2848 (Power of Attorney and Declaration of Representative).

If you believe the IRS is not following proper procedures, you can contact the Taxpayer Advocate Service (TAS) at 877-777-4778. TAS is an independent organisation within the IRS that helps taxpayers resolve problems that have not been resolved through normal channels. Under IRC Section 7811, TAS can issue a Taxpayer Assistance Order if they determine you are suffering or about to suffer a significant hardship.

Every taxpayer has the right to representation, the right to appeal, and the right to be treated fairly during an examination. (IRC Section 7803(a)(3); IRS Publication 1; IRC Section 7521(a); IRC Section 7811)

Audit reconsideration and industry-specific Audit Technique Guides

If an audit has already been completed and you disagree with the outcome but did not respond in time, audit reconsideration (IRM 4.13.1) allows you to request that the IRS reopen the examination. This is distinct from the appeals process. Audit reconsideration is available when: you have new documentation that was not previously considered, the IRS made a computational or processing error, or you did not appear for a scheduled appointment and the IRS issued a default assessment. File Form 12661 or send a letter to the audit reconsideration unit with your new evidence.

You should also know that the IRS publishes Audit Technique Guides (ATGs) for specific industries and issues. These are the internal manuals that examiners use to audit businesses in fields like construction, veterinary medicine, cash-intensive businesses, and the sharing economy. ATGs are publicly available on IRS.gov. Reading the ATG for your industry before responding to an audit gives you a significant advantage because you will know exactly what the examiner has been trained to look for. For example, the Cash Intensive Businesses ATG instructs examiners to use bank deposit analysis, markup methods, and specific item methods to reconstruct income.

You can request the IRS reopen a closed audit if you have new evidence, and you can read the same internal guides the auditor uses. Under the Cohan rule, where you can prove a business expense occurred but cannot prove the exact amount, the IRS and Tax Court may allow a reasonable estimate rather than disallowing the deduction entirely — but this rule does NOT apply to listed property (vehicles, travel, meals, entertainment) where strict substantiation is required under §274(d). (IRM 4.13.1 (Audit Reconsideration); IRM 4.10.4 (Examining Officer's Responsibility); Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930) (reasonable-estimate doctrine for substantiated-but-unquantified expenses); IRC §274(d) (listed-property exception to Cohan))