How Does an IRS Audit Work? Process, Appeals, and Penalties

An IRS audit is a review of specific items on your tax return — usually income, deductions, or credits — to confirm you reported them correctly. Understanding how an IRS audit works matters because the process follows fixed rules: the IRS contacts you by mail, tells you exactly what it wants to see, gives you a chance to respond and appeal, and can only look back a limited number of years. Most audits are handled entirely through the mail, and most focus on returns filed within the past two years.1Internal Revenue Service. IRS Audits

How the IRS Contacts You

The first notice always arrives by U.S. mail. The IRS does not open audits by phone, email, or text, and it does not use social media. If someone contacts you through any other channel claiming to start an audit, treat it as a scam.

The letter identifies the tax year under review, the specific items the examiner is questioning, and how to respond. It also lists the examiner’s contact information and a deadline. Keep it — you will need to refer back to it throughout the process.

The Three Types of Audits

What happens next depends on which of three formats the IRS assigns to your case.

A correspondence audit is handled entirely by mail. The IRS asks for documentation supporting one or a few items on your return, you send the records back, and the examiner reviews them without meeting you. This is the most common type.

An office audit requires you or your representative to bring records to a local IRS office for a face-to-face meeting. Office audits usually target specific line items but involve more complexity than a mail review.

A field audit is the most involved. An IRS agent comes to your home, your business, or your accountant’s office to examine a broader range of records, often covering multiple areas of the return.

What the Examiner Will Ask For

The examiner sends a formal request using Form 4564, the Information Document Request. It spells out which documents the IRS wants, when they are due, and how to submit them.2Internal Revenue Service. Form 4564 – Information Document Request Every number on your return should tie back to a receipt, statement, or other record. Typical categories include:

  • Income records such as W-2s, 1099 forms, bank statements, and records of cash received
  • Expense records including receipts, canceled checks, credit card statements, and invoices
  • Property records like closing statements and improvement receipts
  • Legal documents such as divorce decrees or settlement agreements that affect your taxes

Group your records by category, and attach a summary sheet to each group showing how the individual items add up to the total on your return. A clean package cuts down on follow-up requests.

If your records are electronic, they must be retrievable and printable, and you may have to give the IRS access to the software used to create them.3Internal Revenue Service. Automated Records

How Far Back the IRS Can Look

The IRS generally has three years from the date you filed to start an audit. If you filed before the April deadline, the clock starts on the due date instead.4Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection Several situations stretch or remove that limit:

These deadlines drive how long to keep records. Three years is the minimum. Keep six years of records if you have any reason to think the extended window could apply. For property, hold onto purchase and improvement documents until at least three years after you sell.5Internal Revenue Service. Topic No. 305, Recordkeeping

How the Examination Unfolds

Once you submit your documents, the examiner compares them against what you reported. In a correspondence audit, this happens without any further contact until the IRS writes back. In office and field audits, the examiner may ask questions, request clarification, or ask for more records.

Timing varies. A simple mail audit can close in a few weeks. A complex field audit can take several months, depending on the volume of records and how quickly both sides respond.

If you feel you’re not being treated fairly at any point, you can ask for an informal conference with the examiner’s manager before the examination closes.7IRS. Publication 3498-A – The Examination Process (Audits by Mail)

Getting the Results

When the exam is done, the examiner issues a Revenue Agent Report. The report explains any proposed changes to income, deductions, or credits and calculates the additional tax, interest, and any penalties.

If You Agree with the Findings

You sign the agreement form included with the report. That authorizes the IRS to assess the additional tax right away, and you get a bill. Paying the full amount promptly stops the failure-to-pay penalty from continuing to accrue.8Internal Revenue Service. Failure to Pay Penalty

If You Disagree

Don’t sign. The IRS will then send a 30-day letter, giving you 30 days to request review by the IRS Independent Office of Appeals.9Taxpayer Advocate Service. Letter 525 Audit Report/Letter Giving Taxpayer 30 Days to Respond

Appeals and Tax Court

The Office of Appeals operates separately from the examination division and tries to settle disputes without going to court. You file a written protest explaining what you disagree with, the facts, and your legal basis. An Appeals Officer then holds an informal conference by phone, video, or in person. Many disputes are resolved here.

If Appeals can’t settle the case, or if you skip Appeals, the IRS issues a statutory notice of deficiency, known as the 90-day letter. You have exactly 90 days from the date it’s mailed (150 days if you’re outside the United States) to file a petition with the U.S. Tax Court.10Office of the Law Revision Counsel. 26 USC 6213 – Restrictions Applicable to Deficiencies; Petition to Tax Court The IRS can’t assess the disputed tax or begin collection while that window is open or while a Tax Court case is pending.

Tax Court is the only federal court where you can challenge the IRS’s determination without paying the disputed amount first.11Taxpayer Advocate Service. Filing a Petition with the United States Tax Court Miss the 90-day deadline and you lose that option; the IRS will assess the tax, and your only remaining path is to pay it, file a refund claim, and sue in federal district court or the U.S. Court of Federal Claims if the claim is denied.12Internal Revenue Service. Understanding Your CP3219N Notice

Penalties and Interest

If the audit shows you underpaid, the IRS can add penalties on top of the additional tax:

  • Accuracy-related penalty: 20% of the underpayment when it was caused by negligence, a substantial understatement of income, or a substantial valuation misstatement. For gross valuation misstatements, the rate is 40%.13Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
  • Civil fraud penalty: 75% of the portion of the underpayment the IRS proves was fraudulent. Once fraud is established for any part of the underpayment, the entire amount is presumed fraudulent unless you can show otherwise.14Office of the Law Revision Counsel. 26 USC 6663 – Imposition of Fraud Penalty
  • Failure-to-pay penalty: 0.5% of the unpaid tax for each month or partial month the balance is outstanding, capped at 25%. The rate drops to 0.25% per month if you have an approved installment agreement and filed on time.8Internal Revenue Service. Failure to Pay Penalty

Interest also runs on the unpaid tax and any penalties. For the second quarter of 2026, the individual underpayment rate is 6%, compounded daily.15Internal Revenue Service. Internal Revenue Bulletin 2026-08 The rate is reset quarterly.

Paying What You Owe

If you can’t pay the full balance right away, the IRS offers several arrangements.

A short-term payment plan gives you up to 180 days to pay with no setup fee, though interest and the failure-to-pay penalty keep accruing.16Internal Revenue Service. Payment Plans; Installment Agreements

A long-term installment agreement stretches monthly payments beyond 180 days. Setup fees are $22 for direct debit set up online, $107 for direct debit set up by phone or mail, and $69 for other payment methods set up online. Low-income taxpayers may qualify for a waiver or reduction. If you use direct debit and filed your return on time, your monthly failure-to-pay penalty drops to 0.25%.8Internal Revenue Service. Failure to Pay Penalty

An offer in compromise lets you settle for less than the full amount owed if paying in full would cause hardship or if there’s genuine doubt about how much you owe. You must have resolved any open audit, filed all required returns, received a bill for at least one of the debts, and stayed current on estimated tax payments for the year.17Internal Revenue Service. Form 656 Booklet – Offer in Compromise The IRS reviews your income, expenses, and assets before accepting.

Your Rights and Getting Representation

The Taxpayer Bill of Rights sets out ten protections that apply during an audit, including the right to be informed, the right to challenge the IRS’s position and be heard, the right to appeal in an independent forum, and the right to retain representation.18Internal Revenue Service. The Taxpayer Bill of Rights – Fundamental Protection for All Taxpayers

Attorneys, certified public accountants, and enrolled agents can represent you at every stage, from examination through appeals and Tax Court. You authorize them with Form 2848, which lets them see your tax information, deal with the IRS on your behalf, and sign audit agreements.19Internal Revenue Service. Instructions for Form 2848 – Power of Attorney and Declaration of Representative

The preparer who signed your return can also represent you, but only during the examination of that specific return, and only if they’re an unenrolled preparer. They can’t represent you at Appeals or in collection matters.19Internal Revenue Service. Instructions for Form 2848 – Power of Attorney and Declaration of Representative

If you can’t afford a professional, Low Income Taxpayer Clinics offer free or low-cost representation in audits, appeals, and collection disputes.11Taxpayer Advocate Service. Filing a Petition with the United States Tax Court

Reopening a Closed Audit

If your audit has already closed because you missed a deadline, didn’t respond, or didn’t have the right records at the time, you can ask for audit reconsideration. You need to have filed the return, still owe a balance from the audit, and have new documents or information the examiner didn’t see the first time.20Internal Revenue Service. 4.13.1 Examination Audit Reconsideration Process The IRS won’t reopen cases decided by the Tax Court or closed through a formal agreement with Appeals.