Background

An IRS field examination (an on-site audit) is more invasive than a correspondence or office audit because an agent reviews records at your business location. The IRS notifies you in advance; the notice will list the scope, documents requested, and a proposed start date. (See IRS guidance on what to expect during an audit: https://www.irs.gov/businesses/small-businesses-self-employed/what-to-expect-during-an-audit.)

Why preparation matters

Well-prepared businesses shorten the exam, limit disruptions, and reduce the chance of proposed adjustments and penalties. In my practice working with small businesses for 15+ years, the owners who kept orderly digital and paper records and engaged a tax professional consistently saw better results and fewer follow-up requests.

Step-by-step preparation checklist

  1. Read the notice carefully and note deadlines
  • Confirm the type of exam (field) and the scope.
  • Record the agent’s name and a scheduled start date.
  1. Designate a single point of contact
  • Appoint one employee and one tax professional to handle communications. This reduces confusion and prevents accidental over-sharing.
  1. Gather and organize documents (start with these priorities)
  • Tax returns for the years under exam and related schedules.
  • General ledger, bank statements, deposit slips, and reconciliation reports.
  • Sales records, receipts, invoices, credit card statements, and cash logs.
  • Payroll records, Form 941/940 filings, and employment tax records.
  • Fixed-asset ledgers, purchase invoices, and depreciation schedules.
  • Contracts, leases, loan agreements, and invoices supporting major transactions.

For a focused list of commonly requested items, see our guide: Preparing for an Audit: Documents the IRS Often Requests (https://finhelp.io/glossary/preparing-for-an-audit-documents-the-irs-often-requests/).

  1. Create a digital audit package
  • Scan or export documents in pdf/CSV formats, named consistently by date and type.
  • Use a folder structure that mirrors the request (e.g., “Bank,” “Sales,” “Payroll”).
  • Provide a short index or table of contents for the agent.

Our tutorial on building a digital file shows useful naming conventions and structure: Preparing a Digital Audit Package: Organizing Electronic Records for the IRS (https://finhelp.io/glossary/preparing-a-digital-audit-package-organizing-electronic-records-for-the-irs/).

  1. Perform a short self-review
  • Reconcile bank statements to the general ledger for the years under review.
  • Confirm large or unusual items have source documents.
  • Identify potential problem areas (unreported income, mixed personal/business expenses) and prepare explanations.
  1. Manage the onsite logistics
  • Choose a quiet, secure space for the examination with internet access and printing capability.
  • Limit the auditor’s access to only the records requested; do not leave confidential client data unattended.

How to interact with the agent

  • Be cooperative but concise. Answer direct questions and provide only requested documents.
  • Do not volunteer extra information that could broaden the examination scope.
  • Request clarification in writing if the request is vague or overly broad.
  • If disagreements arise, document the discussion and escalate to your tax professional.

Taxpayer rights and representation

You have the right to representation and to be treated courteously. Consider having a CPA, enrolled agent, or tax attorney present during interviews or when handing over records. The IRS Taxpayer Bill of Rights and audit guidance outline these protections: https://www.irs.gov/taxpayer-bill-of-rights and https://www.irs.gov/businesses/small-businesses-self-employed/what-to-expect-during-an-audit.

Common pitfalls to avoid

  • Providing original documents unnecessarily; provide copies unless the agent requests originals.
  • Letting staff guess answers—only the designated contact should speak to the agent.
  • Ignoring small discrepancies—explain and document even minor reconciling items.

Recordkeeping best practices going forward

  • Keep electronic backups and a clear folder structure; retain records for at least the IRS-recommended period (usually 3–6 years for most items; refer to IRS guidance for specific retention rules).
  • Implement routine self-audits and reconciliations to catch issues early.

When to bring in outside help

  • If the audit covers complex areas (transfer pricing, related-party transactions, employment taxes), engage a specialist.
  • If the IRS proposes significant adjustments or penalties, a tax attorney or experienced CPA can negotiate, file appeals, or prepare an audit reconsideration.

Further reading and tools

Professional insight

In my practice, teams that prepare a one-page audit index and a 30-minute pre-audit walkthrough with their tax professional reduce the exam length by half. Early transparency about your recordkeeping system builds credibility with the agent.

Disclaimer

This article is educational and does not replace personalized tax advice. Contact a qualified tax professional to discuss specifics for your business.