A Revenue Agent Report (RAR) is a formal document issued by the Internal Revenue Service (IRS) after it completes an audit of your tax return. The RAR outlines any proposed changes to your reported income, deductions, credits, or tax owed. It represents the IRS’s official conclusions including the rationale for each change based on tax laws and regulations. Understanding this report is crucial because it informs you of any adjustments, potential additional taxes, penalties, and interest, as well as your right to respond or appeal.
The IRS Audit Process Leading to an RAR
The RAR follows a thorough audit process where the IRS examines your tax return to verify accuracy and compliance. Audits vary in scope:
- Correspondence Audits: Conducted by mail, where the IRS requests documentation on specific return items.
- Office Audits: Involve in-person visits to an IRS office for more detailed discussions.
- Field Audits: The most comprehensive, involving an IRS agent visiting your home, business, or accountant’s office to review records.
During these audits, IRS revenue agents scrutinize your books, records, and explanations. If discrepancies arise, they document their findings in the RAR.
Content and Purpose of a Revenue Agent Report
An RAR includes:
- Proposed Adjustments: Specific items the IRS agent believes should be changed.
- Explanations: References to tax laws or regulations supporting each adjustment.
- Tax Computation: How changes affect your overall tax liability.
- Penalties and Interest: Any additional charges applicable.
- Taxpayer Rights and Options: Guidance on how to respond.
The RAR is more than a summary—it’s the IRS’s official position and the foundation for any further action.
Responding to the RAR
Taxpayers can:
- Agree to the Report: Sign Form 870 to accept the changes and close the case.
- Disagree and Appeal: Request a conference with the IRS Appeals Office to negotiate or file a formal written protest if the disputed amount exceeds IRS thresholds (generally over $25,000).
- Ignore the Report: This risks the IRS issuing a Statutory Notice of Deficiency (90-day letter), leading to automatic tax assessment and potential collections without further taxpayer input.
Appealing provides an opportunity to present additional evidence or negotiate settlements, often with assistance from tax professionals such as Certified Public Accountants or enrolled agents.
Who Receives an RAR?
Individuals, small businesses, corporations, and partnerships can all receive an RAR if audited and proposed tax adjustments are identified. Complexity or business size does not exempt anyone.
Tips for Handling an RAR
- Review Thoroughly: Understand every proposed change and its justification.
- Compare Against Your Records: Gather any supporting documentation you have.
- Meet Deadlines Promptly: IRS timelines for responses and appeals are strict.
- Consult a Tax Professional: Their expertise can improve outcomes and ease the process.
- Don’t Ignore It: Ignoring an RAR can lead to increased penalties and enforcement actions.
Common Misconceptions
An RAR is not a criminal accusation but a notification of discrepancies. Taxpayers maintain appeal rights and can submit additional documentation during the appeals…
FAQs
- What if I don’t respond to the RAR? The IRS will issue a 90-day letter and may eventually assess taxes and begin collections.
- Can I negotiate? Yes, the IRS Appeals Office facilitates settlements based on the case merits.
- How long does an audit take? It varies from a few months for simple cases to over a year for complex ones.
- Should I get professional help? Highly recommended to navigate tax law and negotiations.
For more detailed guidance, see our article on Revenue Agent and What is an Examination Report?.
References
- Internal Revenue Service. “Audits.” https://www.irs.gov/audits (Accessed June 2025).
- Investopedia. “How to Respond to an IRS Audit.” https://www.investopedia.com/articles/tax/10/how-to-respond-to-an-irs-audit.asp (Accessed June 2025).