How to Prepare for an IRS Field Audit: Documentation and Best Practices

Overview

An IRS field audit is typically more involved than a correspondence or office audit because an IRS agent visits your home, business, or your tax preparer’s office to examine original records. Proper preparation reduces stress, shortens the inspection, and lowers the chance of adjustments or penalties. In my practice helping taxpayers for over 15 years, clients who prepared a clear, indexed packet and communicated promptly had materially better outcomes (fewer follow-ups and smaller proposed adjustments).

(Authoritative source: IRS Field Audits page: https://www.irs.gov/businesses/small-businesses-self-employed/field-audits)

Quick starter checklist

• Verify the audit notice is legitimate (return address, contact info on IRS.gov).
• Read the scope statement in the notice and list requested tax years.
• Assemble original source documents and digital copies (see full list below).
• Create an indexed binder (or secure folder) organized by tax year and issue.
• Designate one point of contact and document all communications.
• Consider filing Form 2848 (Power of Attorney) if a tax pro will represent you.

Which documents to gather (practical list)

The exact documents depend on what the IRS is examining. Below are the most commonly requested items for field audits:

• Filed tax returns for the years under audit and any amended returns.
• W-2s, 1099s, K-1s, and other information returns.
• Bank statements (business and personal) for the relevant years.
• Business ledgers, sales journals, cash receipts, and deposit slips.
• Receipts and invoices supporting deductions (meals, travel, supplies).
• Payroll records, timesheets, and payroll tax filings (Form 941/940).
• Credit card statements and reconciliations.
• Contracts, lease agreements, loan documents, and closing statements.
• Mileage logs and odometer records (if vehicle use is under review).
• Home-office calculations and records supporting square footage allocation.
• Inventory records and year-end counts for businesses that carry inventory.
• Third-party statements like merchant account reports (for cash-heavy businesses).
• Correspondence with third parties that supports claimed positions.

If records are missing, collect substitutes (ledgers, bank reconciliations, affidavits from vendors). I regularly reconstruct income using bank deposits and invoices when originals are lost — it’s slower, but acceptable when documented carefully.

(See IRS guidance on documentation expectations: https://www.irs.gov/)

How to organize records for the agent

• Use an indexed binder or secure digital folder for each tax year. Start with a cover page that lists the contents and a short narrative of the issue (e.g., “2023 Schedule C: explanation of high vehicle expenses”).
• Number pages and include a table of contents. Agents appreciate when you reduce their search time.
• Provide originals if demanded, but keep copies for your records. Use secure transport and avoid leaving originals unattended.
• If using digital delivery, prefer PDFs named clearly (e.g., “2023BankAccountBBBBankStmt01-2023.pdf”).
• Highlight key items with sticky notes or flags and create a one-page summary for complex issues.

For more on organizing supporting documentation, see our guide: “How to Organize Supporting Documentation for a Tax Audit” (FinHelp.io: https://finhelp.io/glossary/how-to-organize-supporting-documentation-for-a-tax-audit/).

What happens during a field audit (expectations and agent conduct)

• The IRS will notify you by mail. The notice will typically include the agent’s name and a phone number or letter explaining the scope. Phone-call-only contact is suspicious; legitimate notices come in writing first. Verify the notice against information on IRS.gov before acting.
• The agent will request to review records on-site. They may copy records, take notes, and ask clarifying questions. Agents should identify themselves with a government ID.
• Keep answers factual and to the point. Don’t volunteer extra explanations that could create new issues.
• You can ask for reasonable time to gather material. If you need more time, request it in writing and explain why.

(Procedures summarized from IRS guidance on audits: https://www.irs.gov/businesses/small-businesses-self-employed/field-audits)

Communication: verify notices and protect yourself

• Verify the notice by visiting IRS.gov and searching your notice number or calling the IRS at the published number; don’t call phone numbers in suspicious emails.
• Keep a paper trail of all communications: dates, names, and summaries of phone calls and letters.
• If an agent requests unusual access (e.g., to personal devices or unrelated records), ask for the request in writing and consult a tax professional or the IRS contact listed on the notice.

When to hire a tax professional or submit a Power of Attorney

• Hire a CPA, enrolled agent, or tax attorney if the audit covers complex business issues, penalties, or potential criminal exposure.
• File Form 2848 (Power of Attorney) to allow a representative to speak on your behalf. This often streamlines the process — the agent will deal with your representative instead of you.

In my practice I commonly become the single point of contact for the IRS, which reduces taxpayer stress and prevents inconsistent statements.

Useful internal resource: “Field Audit Survival Guide: Interviews, Visitation, and Evidence” (FinHelp.io: https://finhelp.io/glossary/field-audit-survival-guide-interviews-visitation-and-evidence/).

Common pitfalls and how to avoid them

• Missing records: keep at least three years of returns and supporting documents; many businesses keep seven years for payroll and certain assets.
• Over-sharing: only provide documents requested. Keep answers concise.
• Mixing personal and business accounts: maintain separate bank accounts and credit cards for business. If commingling occurred, create clear reconciliations.
• Failing to document cash sales: for cash-heavy businesses, use daily sales logs, deposit summaries, and third-party receipts to show income.

Reconstructing lost records

If originals are destroyed or lost (disasters, theft), reconstruct using:

• Bank deposits and withdrawals, credit card records, merchant processing reports.
• Supplier invoices and vendor statements.
• Affidavits from business partners or clients if necessary.

Document the steps you took to reconstruct records and summarize assumptions. The IRS accepts reconstructed records if they are credible and supported by independent evidence.

See our step-by-step guide to gathering records: “How to Gather Records for an IRS Audit: A Step-by-Step Guide” (FinHelp.io: https://finhelp.io/glossary/how-to-gather-records-for-an-irs-audit-a-step-by-step-guide/).

Timeline: typical stages and what to expect

• Notice received (Day 0).
• Initial contact with agent and agreement on scope (days to weeks).
• Document collection and on-site review (weeks to a few months, depending on complexity).
• Agent issues a proposed report/changes or closes the audit without change.
• Appeals or payment/collection stage if adjustments are proposed. You typically have 30–60 days to appeal, depending on the notice.

Timing varies; complex business audits can take many months. Prompt responses shorten the process.

After the audit: outcomes and next steps

Possible outcomes:

• No change: audit closed with no adjustments.
• Agreed changes: you accept proposed adjustments and pay tax/penalties due.
• Unagreed changes: you can appeal within the period specified on the audit notice.

If penalties are proposed, consider reasonable cause arguments or penalty abatement requests; penalty relief is sometimes granted for documented good faith.

For appeals guidance, consult our article on preparing for appeals conferences and negotiating audit resolutions.

Sample document index (one-page starter)

1. Tax returns: 2021, 2022, 2023 (copies)
2. W-2s / 1099s for 2021–2023
3. Business bank statements (2021–2023) — monthly
4. Sales journals and daily deposit logs (2023)
5. Receipts supporting Schedule C deductions (meals, travel)
6. Mileage logs and vehicle records (2021–2023)
7. Payroll records and Forms 941 (2021–2023)
8. Contracts / rental agreements
9. Reconciliations and summary narratives

Final professional tips

• Stay calm and factual. Audits are inquiries, not convictions.
• Do not alter or destroy records after you receive the audit notice; doing so may lead to additional penalties.
• If you are unsure about producing a document, consult a tax professional before releasing it.

Resources & authoritative references

• IRS Field Audits (overview): https://www.irs.gov/businesses/small-businesses-self-employed/field-audits
• IRS general site for notices and taxpayer rights: https://www.irs.gov

Internal FinHelp resources referenced:

• Field Audit Survival Guide: Interviews, Visitation, and Evidence — https://finhelp.io/glossary/field-audit-survival-guide-interviews-visitation-and-evidence/
• How to Gather Records for an IRS Audit: A Step-by-Step Guide — https://finhelp.io/glossary/how-to-gather-records-for-an-irs-audit-a-step-by-step-guide/
• How to Organize Supporting Documentation for a Tax Audit — https://finhelp.io/glossary/how-to-organize-supporting-documentation-for-a-tax-audit/

Professional disclaimer: This article is educational and does not substitute for personalized tax advice. For advice tailored to your facts, consult a qualified tax professional, enrolled agent, CPA, or tax attorney.

(Prepared using current IRS guidance as of 2025.)