Overview

The IRS uses automated matching systems and manual reviews to flag returns that differ from third‑party information or show unusual patterns. Common triggers lead first to correspondence (a notice or a request for documents) and can escalate to examinations if the issue isn’t resolved. For an explanation of how the IRS communicates with taxpayers, see the IRS page “Understanding Your IRS Notice or Letter” (IRS.gov).

Common triggers and why they matter

  • Mismatched third‑party reports: Income shown on W‑2s, 1099s, and other information returns that doesn’t match the amounts on your return. The IRS’s automated matching programs catch these differences and often generate a notice. (See IRS information returns guidance: https://www.irs.gov/individuals/information-returns.)
  • Unreported or underreported income: Missing 1099/1098 items or crypto transactions. Unreported income is one of the most frequent causes of correspondence and can produce penalties and interest.
  • Large deduction-to-income ratios: Deductions (medical, business, charitable) that are unusually large compared with reported income — especially on Schedule C for sole proprietors — often trigger requests for substantiation.
  • Sudden, significant year‑to‑year changes: Big jumps or drops in income, losses, or credits without an explanation can flag returns for review.
  • Home office and hobby‑loss claims: Home office deductions and repeated Schedule C losses raise scrutiny because they’re commonly misapplied.
  • Excessive credits or refunds: Large refundable credits or unusually large refunds relative to prior years increase the chance of a refund audit.
  • Payroll and employment mistakes: Incorrect wage reporting, employment tax issues, or missing payroll filings for businesses.

Real‑world examples

  • A freelancer omitted a 1099‑NEC and received a notice from the IRS matching the payer’s filed return; the case was resolved by amending the return and paying tax owed plus interest.
  • A taxpayer claimed unusually high medical expenses in a single year; the IRS requested receipts and Explanation of Benefits (EOBs) before allowing the deduction.

What to do if the IRS contacts you

  1. Read the notice fully and note the deadline. The IRS explains the reason for the letter and any actions required — start there (IRS: “Understanding Your IRS Notice or Letter”).
  2. Don’t ignore it. Missing a response can escalate the matter to an audit or additional penalties.
  3. Gather supporting documents that match the IRS’s issue (W‑2s, 1099s, receipts, bank records, invoices).
  4. Respond exactly as the letter instructs. If the notice asks for an explanation, provide a concise, factual response and copies (not originals) of documents.
  5. Fix clear errors: file an amended return (Form 1040‑X) if you omitted income or made a mathematical error.
  6. Seek professional help if the issue is complex, involves large amounts, or you’re uncertain how to proceed.

Documentation checklist for common notices

  • Copies of W‑2s, 1099‑NEC/1099‑MISC, 1099‑INT/1099‑DIV
  • Bank statements and deposit records
  • Receipts, invoices, and canceled checks for expenses claimed
  • Mileage logs and home‑office calculations for business use
  • Brokerage statements and cryptocurrency transaction histories

How to reduce the chance of triggering correspondence

  • Reconcile forms: Before filing, cross‑check all W‑2s and 1099s against your records.
  • Keep clear, contemporaneous records: Save receipts, EOBs, invoices, and mileage logs.
  • Use consistent reporting: Match income and expense categories to the forms you receive.
  • Consider professional preparation for complex situations like rental properties, S‑corps, or significant crypto trades.
  • Automate recordkeeping: recordkeeping tools can cut errors and make documentation retrieval faster — see our guide on Recordkeeping Automation Tools That Reduce Audit Risk.

Types of IRS contact: correspondence vs. audits

Many initial contacts are correspondence items resolved by mail or secure upload. If the IRS needs more than a simple clarification, they may proceed to a correspondence audit or an in‑person/field audit. For preparing correspondence responses, see our article on Preparing for an IRS Correspondence Audit: What Documentation Helps.

When to get professional help

If the notice involves substantial tax, penalties, or potential criminal exposure; requests records you don’t have; or the IRS has proposed a significant change, engage a CPA, EA, or tax attorney. In my experience working with clients, obtaining a focused response packet that directly answers the IRS’s question often avoids escalation.

Authoritative sources and further reading

Professional disclaimer

This article is educational and not personalized tax advice. For guidance about a specific IRS notice or your tax return, consult a qualified tax professional.