IRS Letter 2205 is the notice the IRS sends to tell you your federal income tax return has been selected for examination. The letter names the tax year under review, lists the specific items the agency wants to verify, and gives you a short window to call and schedule your first appointment. The single most important thing you can do is call by that deadline. If you don’t, the IRS can disallow the questioned items, assess the additional tax, and tack on penalties and interest without ever hearing your side.
What the Letter Is Actually Telling You
Letter 2205 does more than announce an audit. It defines its scope. You’ll see which tax year (or years) are being examined and which forms, schedules, or line items drew attention. Common targets include Schedule C business income and expenses, large itemized deductions on Schedule A, and significant capital gains or losses. That specificity is useful: you prepare for what the examiner asked about, not for your entire return.
The letter also tells you whether the examination will be an office exam or a field exam. An office exam takes place at a local IRS facility, where you or your representative sit down with an auditor and walk through the flagged items.1Internal Revenue Service. The Examination (Audit) Process A field exam happens at your home, business, or your tax professional’s office and tends to involve more complex returns, especially businesses and taxpayers with extensive records.
Call by the Deadline on the Letter
The letter lists a contact person and a date to call by. That window is tight, so call promptly. Making contact on time keeps you in the conversation and preserves your ability to put documentation in front of the examiner before any decisions get made.
Use the first call to do more than pick a date. Ask clarifying questions about what the examiner wants to see. If the assigned IRS office is inconvenient, ask for a transfer. The IRS will generally agree to move an office examination to a closer facility if you’ve relocated or your records are stored elsewhere, and for field exams, the IRS will typically shift the examination to the location where your books and records are actually maintained.2Internal Revenue Service. Internal Revenue Manual Part 4 – Transfer of Returns Open for Examination
Should You Bring in a Representative?
You can represent yourself. Many people do, especially when the flagged items are limited and well documented. But attorneys, certified public accountants, and enrolled agents are all authorized to practice before the IRS under Treasury Department Circular 230, and for anything beyond a narrow, simple question, a representative pays for themselves in time and in avoided mistakes.3Internal Revenue Service. Office of Professional Responsibility and Circular 230
If you do hire someone, file IRS Form 2848, Power of Attorney and Declaration of Representative, as soon as possible. The form authorizes your representative to speak with the IRS on your behalf, receive confidential tax information, and attend meetings without you present.4Internal Revenue Service. About Form 2848, Power of Attorney and Declaration of Representative Until that form is on file, the IRS won’t discuss your case with anyone but you.
Pull Together the Records That Match the Flagged Items
Work from the letter outward. If the IRS flagged your Schedule C business deductions, pull every receipt, invoice, bank statement, and credit card record that supports those expenses. The IRS expects source documents that show who was paid, how much, when, and why the expense was business-related.5Internal Revenue Service. What Kind of Records Should I Keep An invoice describing the service and tying to a line item on your return is far more persuasive than a bare credit card charge.
Vehicle expenses get special scrutiny. If you claimed car or truck deductions, you need a contemporaneous mileage log showing the date of each trip, your destination, the business purpose, and odometer readings at the start and finish.6Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses Contemporaneous matters: a log kept at or near the time of each trip carries far more weight than one reconstructed months later. A weekly log is acceptable as long as it accounts for all use during that week.
Organize everything by expense category and date. Group all office supply receipts together, all travel expenses together, and so on, then arrange each group chronologically and reconcile the totals to the corresponding line items on your return. Pull in supporting documents like contracts, loan agreements, and business licenses that establish the business purpose behind the expenses. Scanned receipts and digital accounting files are acceptable as long as they’re legible and you can produce hard copies if asked. Disorganized records prolong audits and invite the examiner to dig deeper.
What Happens at the Examination
At the meeting, the examiner compares your documentation against what your return reported. Office audits tend to be focused sessions covering the specific flagged items. Field audits are broader and may involve the examiner spending hours (sometimes multiple visits) going through your business books. In either case, the examiner is looking for documentation that matches the amounts on your return. You’re not there to argue the tax code.
You have the right to make an audio recording of any in-person interview with the IRS, at your own expense and with your own equipment, as long as you make an advance request.7Office of the Law Revision Counsel. 26 USC 7521 – Procedures Involving Taxpayer Interviews The statute requires advance notice but does not specify a minimum number of days, so put the request in writing when you schedule the appointment. You’re also entitled to a copy of IRS Publication 1, which outlines your rights throughout the process.8Internal Revenue Service. Publication 1 – Your Rights as a Taxpayer
During or after the initial meeting, the examiner may issue an Information Document Request (IDR) asking for additional documentation.9Internal Revenue Service. New Process for Information Document Requests Treat every IDR as seriously as the original letter. Each one has its own deadline, and missing it gives the examiner reason to disallow the expense outright. If you can’t gather everything in time, contact the examiner before the deadline to negotiate an extension rather than letting it pass in silence.
How the Audit Ends
The examination closes in one of three ways.
No Change
The IRS accepts your return as filed, issues a “no change” letter, and closes the case. You owe nothing additional. Federal law also generally prohibits the IRS from inspecting your books more than once for the same tax year unless the agency provides written notice that an additional inspection is necessary.7Office of the Law Revision Counsel. 26 USC 7521 – Procedures Involving Taxpayer Interviews
Agreed Changes
The examiner proposes adjustments and you agree. You’ll sign Form 4549, Report of Income Tax Examination Changes, and receive a bill for the additional tax, plus any applicable penalties and interest.10Internal Revenue Service. Audit Reconsideration Process for Correspondence Examination Signing waives your right to appeal those findings through the IRS. If you mostly agree but dispute one or two items, you can accept the undisputed adjustments and contest the rest.
Disagreement
If you disagree, the IRS issues a 30-day letter (typically Letter 525) with the examination report explaining each proposed change and the reasoning behind it.11Taxpayer Advocate Service. Letter 525 Audit Report/Letter Giving Taxpayer 30 Days to Respond You then have 30 days to formally protest and request a conference with the IRS Independent Office of Appeals.
Appeals and Tax Court
How you file the protest depends on the dollar amount. If the total proposed additional tax and penalties for each tax period is $25,000 or less, you can submit a Small Case Request using Form 12203, a short statement listing the items you disagree with and why.12Internal Revenue Service. Preparing a Request for Appeals Above $25,000, you must file a formal written protest within the 30-day window: a statement of facts, the specific items in dispute, the law or authority supporting your position, and a penalties-of-perjury declaration.
The Appeals conference is an independent review. The Appeals officer is separate from the examination division and has authority to settle cases based on the hazards of litigation, weighing the likelihood that the IRS would prevail in court. Many disputes get resolved at this stage.
If you skip the protest, lose at Appeals, or don’t respond to the 30-day letter, the IRS issues a statutory Notice of Deficiency. It’s often called a 90-day letter because you have 90 days from the date of the notice to file a petition with the U.S. Tax Court (150 days if the notice is addressed to you outside the United States).13Internal Revenue Service. Understanding Your CP3219N Notice A Tax Court petition is the only way to dispute the tax before paying it. Miss the 90 days and the IRS assesses, and your remaining options require paying first and then suing for a refund in federal district court or the Court of Federal Claims.
What the Bill Can Look Like
When an audit results in additional tax, the bill rarely stops at the tax itself.
The most common audit penalty is the accuracy-related penalty under IRC 6662: 20% of the portion of the underpayment caused by negligence or a substantial understatement of income tax.14Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments A “substantial understatement” for individuals means the understatement exceeds the greater of 10% of the tax that should have been on the return or $5,000. If you claimed a Section 199A qualified business income deduction, that 10% threshold drops to 5%.
If the IRS determines any part of the underpayment was due to fraud, the penalty jumps to 75% of the fraudulent portion.15Office of the Law Revision Counsel. 26 USC 6663 – Imposition of Fraud Penalty The IRS bears the burden of proving fraud by clear and convincing evidence, but once it proves any portion was fraudulent, the entire underpayment is presumed fraudulent unless you can show otherwise. The IRS cannot stack both the accuracy-related penalty and the fraud penalty on the same dollars.
Interest accrues on unpaid tax from the original due date of the return, not from the date the audit concludes. For individuals, the rate equals the federal short-term rate plus three percentage points, recalculated quarterly.16Internal Revenue Service. Quarterly Interest Rates For the first half of 2026, the individual underpayment rate sits at 7% (January through March) and 6% (April through June). Interest compounds daily, so a multi-year audit can generate a large interest bill on a modest tax adjustment. Unlike penalties, interest generally cannot be abated.
You can request penalty abatement if you have reasonable cause, meaning you exercised ordinary care and prudence but still couldn’t comply due to circumstances beyond your control. The IRS also offers a first-time penalty abatement waiver if you filed all required returns and had no penalties assessed during the three tax years before the year in question.17Internal Revenue Service. Administrative Penalty Relief First-time abatement applies to failure-to-file and failure-to-pay penalties, not to accuracy-related or fraud penalties. If penalties are proposed, ask the examiner about abatement before signing anything.
How Long the IRS Has to Assess
The IRS doesn’t have unlimited time. Under the general rule, the agency must assess any additional tax within three years after you filed your return.18Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection If you filed early, the clock starts on the original due date. If you filed late, it starts on the date you actually filed.
Three exceptions extend or eliminate that window:
- If you left off more than 25% of the gross income reported on your return, the IRS gets six years to assess.
- If the return was fraudulent, there is no time limit.
- If you never filed a return for the tax year in question, the statute of limitations never begins to run.
Check how long ago you filed the return under examination. If the three-year window is close to expiring, the IRS may ask you to sign Form 872 to extend it. You are not required to sign, but refusing may push the examiner to issue a quick (and potentially less favorable) assessment before time runs out. Discuss the pros and cons with your representative before agreeing to any extension.
When the Taxpayer Advocate Service Can Help
If the audit is causing genuine financial hardship, the Taxpayer Advocate Service (TAS) may be able to step in. TAS is an independent organization within the IRS that assists taxpayers whose problems aren’t being resolved through normal channels. You may qualify if the audit threatens your ability to pay for housing, food, utilities, or transportation, or if the process is causing irreparable financial damage like income loss or credit harm.19Taxpayer Advocate Service. Can TAS Help Me With My Tax Issue
To request help, submit Form 911, Request for Taxpayer Advocate Service Assistance, by fax, mail, or email.20Taxpayer Advocate Service. Submit a Request for Assistance Describe the hardship and include documentation where you can. A TAS advocate makes the final call on eligibility. If you haven’t heard back within 30 days, contact the Taxpayer Advocate office where you originally sent your request. TAS won’t replace your representative or guarantee a particular outcome, but having an advocate in your corner can move a stalled examination and keep the IRS to its own procedures.