Background
IRS enforcement has tightened in recent years, and auditors now expect well-organized, verifiable evidence rather than informal explanations. In my 15 years advising clients, the difference between additional tax assessed and a no-change result often came down to how the evidence was presented and whether the taxpayer gave a concise roadmap for the auditor to follow.
How it works — step-by-step
- Read the notice carefully. Note the specific items the IRS questions, the deadline to respond (often 30 days on correspondence audits), and any required submission format. (See IRS guidance.)
- Create a short cover letter. Summarize each disputed item and your conclusion—e.g., “No change requested” or “See attached adjustment calculation.” Use numbered headings that match the IRS notice line items.
- Index exhibits and cross-reference. Produce an exhibit list (Exhibit 1, Exhibit 2) and place a sticky reference on each document. That saves auditor time and signals professionalism.
- Provide corroborating documents. Typical evidence includes receipts, bank statements, invoices, canceled checks, client contracts, accounting reports, and third‑party statements. Where possible, include source data (e.g., original receipts or bank transaction IDs) instead of summarized extracts.
- Show the math. If challenging an adjustment, provide a clear worksheet showing how you computed income, deductions, or basis with references to supporting exhibits.
- Protect sensitive data. Redact Social Security numbers and unrelated personal information unless specifically requested.
- Submit and retain originals. Send copies to the IRS by the method requested (mail, secure portal) and keep originals with a dated transmission record. If represented, submit a power of attorney (Form 2848) so the IRS can discuss the case with your authorized agent.
Key evidence that moves an auditor
- Bank records that match reported deposits and withdrawals.
- Original receipts and vendor invoices that tie directly to claimed expenses.
- Signed contracts, billing statements, and proof of payment (canceled checks, ACH traces).
- Third‑party corroboration: client letters, supplier confirmations, or merchant statements.
- Reconciliations and accounting ledgers that explain how totals were derived.
Real-world examples
- Unreported income: One client had a gap between 1099s and bank deposits. We supplied invoices, client emails confirming payment dates, and bank deposit slips; the auditor accepted the documentation and closed the issue.
- Business expense substantiation: For vehicle deductions, contemporaneous mileage logs combined with maintenance receipts and calendar notes reduced the auditor’s proposed disallowance.
Who is affected
Any taxpayer can be audited: individuals with reporting inconsistencies, high-income filers, small business owners, and those with large or unusual deductions. Business owners often need to defend expense classifications (personal vs. business) and substantiation for travel, meals, and contractor payments.
Professional tips (practical and actionable)
- Respond promptly. Missing deadlines can increase penalties or reduce appeal options.
- Lead with a one-page executive summary: auditors are busy; a quick read helps your case succeed.
- Organize by issue: use numbered tabs and a table of contents tied to the IRS notice items.
- Convert documents to searchable PDFs and include a bookmarked index if submitting electronically—see our guide on preparing a digital audit package.
- Get transcripts early. Request a tax transcript from the IRS to check what items the IRS has on file.
- Consider professional representation for complex matters or significant proposed adjustments.
Evidence table
| Evidence Type | Why it matters | Example |
|---|---|---|
| Receipts | Direct proof of expense and date | Purchase receipts, service invoices |
| Bank statements | Corroborate income deposits or payments | Monthly statements showing deposit descriptions |
| Contracts | Establish business purpose and terms | Client engagement agreements |
| Tax records & returns | Show prior positions and consistency | Prior-year tax return or amended return |
| Third-party confirmations | Independent verification | Letters from clients or vendors confirming amounts |
Common mistakes to avoid
- Sending unindexed piles of documents without a summary.
- Relying on unaudited, summarized spreadsheets without source documents.
- Waiting until the deadline to assemble records—start immediately.
- Overcommunicating irrelevant personal details; focus on the issue at hand.
Frequently asked questions
Q: What should I put in my cover letter?
A: Briefly state who you are, reference the IRS notice, list each audit item with your position, and point the auditor to the exhibit numbers supporting your claim.
Q: How long do I have to respond?
A: Deadlines vary by notice, but correspondence audits commonly allow about 30 days. Always confirm the date on the IRS letter and request an extension in writing if you need more time.
Q: Should I hire a tax professional?
A: If the amounts are material, the issues are complex, or you want representation, a CPA, enrolled agent, or tax attorney can improve outcomes and communicate directly with the IRS on your behalf.
Related resources on FinHelp
- For instructions on which records to keep, see our guide to best practices for record retention to survive an IRS audit.
- If you need a checklist of documents the IRS often requests, see Preparing for an IRS Field Audit: Documents and Timeline.
- For a focused list of items to include with a response, review What to Include with Your Response to an IRS Audit Request.
Professional disclaimer
This article is educational and does not constitute legal or tax advice. Facts and circumstances vary; consult a qualified tax professional for guidance tailored to your situation.
Authoritative sources
- Internal Revenue Service (IRS), guidance on audits and notices: https://www.irs.gov
- Tax Foundation: https://www.taxfoundation.org
- Consumer Financial Protection Bureau: https://www.consumerfinance.gov
(Information current as of 2025.)
