Quick overview
A field audit is an in-person IRS examination, usually conducted at a taxpayer’s business location or representative’s office, where an agent reviews records and interviews owners or employees. Proper preparation shortens the audit, reduces stress, and helps prevent unnecessary adjustments. This article gives a step‑by‑step preparation plan, document checklist, interview strategies, common mistakes to avoid, and links to helpful internal resources and IRS guidance.
Why preparation matters (in practice)
In my 15 years of audit defense and tax preparation, the single biggest difference between a smooth field audit and a prolonged dispute is documentation organization. Agents are more likely to accept clearly labeled records with a short explanatory summary than to dig through boxes looking for support. A pre‑audit meeting to identify contested items and a short, neutral summary letter often short‑circuits follow‑up requests.
Authoritative sources such as IRS Publication 556 explain taxpayers’ rights and the audit process; consult the IRS for official procedures (IRS Publication 556, https://www.irs.gov/pub/irs-pdf/p556.pdf). The IRS also publishes guidance on audit triggers and steps you can take to reduce audit risk (see Audit: Reducing Your Chances of an Audit, IRS.gov).
Pre‑audit checklist: documents to gather
Gather the requested records and organize them so an agent can verify items quickly. Typical documents for a business or self‑employed taxpayer include:
- Tax returns for the years under review plus supporting schedules and worksheets
- General ledger and trial balance for the reviewed years
- Bank statements, canceled checks, and credit‑card statements
- Sales records, deposit slips and point‑of‑sale summaries
- Invoices and receipts for expenses and cost of goods sold
- Contracts, leases, and loan documents
- Payroll registers, Forms W‑2 and 1099 filings, and payroll tax returns
- Fixed‑asset purchase invoices and depreciation schedules
- Mileage logs, appointment books, and calendars for travel and home‑office use
- Insurance records, licenses, and professional permits
- Correspondence with the IRS (any notices, CP letters) and prior audit reports
For home‑office or mixed‑use items, include the calculation method and supporting evidence (floor plans, square footage, utility bills, and allocation worksheets). If you rely on third‑party software (accounting, POS, or merchant services), export readable reports and provide a short explanation of how the system assigns codes and categories.
See also our deeper documentation guide: Preparing for Audit: Documentation and Records to Keep (https://finhelp.io/glossary/preparing-for-audit-documentation-and-records-to-keep/).
Organize your materials: binder and digital best practices
Format matters. Agents appreciate clear organization:
- Create an index and tabbed sections that mirror the agent’s requests.
- Provide a two‑page executive summary that identifies the tax years, the main issues, and where supporting documents are located.
- Use numbered files and label each document with the return line it supports (for example: “Schedule C, Line 22 — Meals & Entertainment — receipts 1–25”).
- For digital delivery, use PDF files, apply OCR for searchability, and use secure transfer methods. Avoid emailing unencrypted files containing Social Security numbers; instead use secure portals or encrypted file shares.
Internal resource: if you expect home‑office questions, review Documenting Home Office Expenses Under Current Rules (https://finhelp.io/glossary/documenting-home-office-expenses-under-current-rules/).
Interview strategy: how to handle agent questions
Field audits include interviews. These are not courtroom cross‑examinations but fact‑finding conversations. Follow these practical rules:
- Designate one spokesperson. Decide who will answer on behalf of the business. If you’re represented, the agent may prefer to deal with the representative; that’s acceptable.
- Be honest and concise. Answer only the question asked. Offer to produce the document if you don’t know the precise figure.
- Don’t guess. If you don’t recall, say, “I don’t have that number on me — I can produce the original record,” then provide it.
- Practice short scripts. For example: “My records show X; here is the invoice that supports it (Tab 4).” Or “The employee classification decision was made based on XYZ factors; the contract and pay records are Tab 6.” Practicing with a mock interview reduces nervousness.
- Take notes and request clarifications. If an agent asks for information that you don’t understand, request that they specify the documents they want and the tax line they are examining.
Legal note on recordings: recording an audit interview may be illegal in your state without consent. Do not record without confirming local law and the agent’s permission. Instead, take detailed notes and confirm key points in writing after meetings.
Working with a representative
You have the right to be represented. A CPA, enrolled agent, or tax attorney can sit in on interviews, submit documents, and negotiate on your behalf. Consider professional representation if:
- Significant tax amounts are at stake
- Potential classification issues exist (employee vs. contractor)
- You suspect a recommended adjustment could lead to civil penalties or criminal exposure
See When to Hire a Tax Professional for an Audit or Appeal for guidance on selecting representation (https://finhelp.io/glossary/when-to-hire-a-tax-professional-for-an-audit-or-appeal/).
Common audit topics and how to pre‑answer them
- Income mismatches: reconcile 1099s and bank deposits. Provide a reconciling schedule showing gross receipts, returns, and other adjustments.
- High deductions vs. peers: prepare industry benchmarks or a clear explanation of business model that justifies the ratio.
- Home‑office deductions: show measurements, exclusive use justification, and an allocation method.
- Employee vs independent contractor: provide contracts, control indicators, and payroll records.
- Owner withdrawals or loans: show minutes, promissory notes, and bank transfers supporting personal vs business transactions.
Typical field audit timeline and statute of limitations
A field audit may focus on one or multiple tax years. In most cases the IRS can assess a tax deficiency within three years of filing. If income is substantially understated (generally more than 25%), the statute extends to six years; there’s no time limit for fraud or deliberate tax evasion (see IRS guidance and Pub. 556). Confirm the years under review early and request the auditor put the scope in writing.
Common mistakes to avoid
- Handing over disorganized boxes without an index. This wastes time and raises suspicion.
- Volunteering extra information. Answer questions directly; do not offer unrelated details.
- Forgetting to redact unrelated taxpayers’ Social Security numbers before providing copies.
- Speaking for employees who are not present: if staff are interviewed separately, allow them to answer in their own words.
Sample responses and scripts
- Agent: “Explain this large deduction.” You: “This deduction is merchant fees for online sales. The receipts and merchant statements are Tab 2. Here’s an 18‑month reconciliation showing matching deposits to invoices.”
- Agent: “Why was the home office claimed?” You: “The space is used exclusively and regularly for client consultations and bookkeeping. Floor plan and allocation are Tab 7; calendar shows normal business use.”
Practice these short, factual replies in advance; it reduces the chance of misspeaking.
After the audit: documenting conclusions
When the fieldwork ends, request a closing conference. Get a written listing of proposed adjustments and any additional time the agent will need to review items. If you disagree with proposed changes, you can file an appeal — see our guide on How to Appeal an IRS Audit Determination: Steps and Timelines (https://finhelp.io/glossary/how-to-appeal-an-irs-audit-determination-steps-and-timelines/).
Frequently asked questions
- What if I can’t find a document? Tell the agent immediately. Offer alternative evidence (bank records, affidavits, supplier confirmations). Explain steps you’ve taken to search and reconstruct records.
- Can the IRS take my computer? The IRS can request digital records and, in limited cases, seize property if there’s a legal order. Usually they ask for copies or secure access first.
- Should I sign anything? Never sign a statement that you don’t understand — ask for time to review and consult counsel.
Final tips from experience
- Prepare an executive summary — agents will read it first and it speeds the process.
- Label everything: link each document to the specific tax return line it supports.
- Be cooperative but cautious: cooperation helps, but protection of your rights is essential.
Sources and further reading
- IRS Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund (https://www.irs.gov/pub/irs-pdf/p556.pdf)
- IRS: Audit — Reducing Your Chances of an Audit (https://www.irs.gov/businesses/small-businesses-self-employed/audit-reducing-your-chances-audit)
- Taxpayer Bill of Rights, IRS (https://www.irs.gov/taxpayer-bill-of-rights)
Disclaimer: This article is educational and informational only and does not constitute legal or tax advice. Every audit is different; consult a licensed tax professional or attorney about your specific situation.
