An IRS audit begins with a letter, not a phone call. The notice identifies the tax year under review and the items the IRS wants to examine, and it sets a deadline for a response. The tone of that first letter often understates what is at stake, because the outcome of an audit depends heavily on how the taxpayer responds in the first few weeks.
Most audits fall into one of three types. A correspondence audit is handled entirely by mail and usually concerns a limited number of items. An office audit requires the taxpayer or a representative to appear at an IRS office with records. A field audit brings an IRS revenue agent to the taxpayer's home or place of business and is the most thorough of the three.
Below is how representation works, why the choice of representative affects what the IRS can learn, and what happens after the examiner reaches a conclusion.
How representation works
A taxpayer may authorize an attorney, a certified public accountant, or an enrolled agent to deal with the IRS by filing Form 2848, Power of Attorney and Declaration of Representative. Once that form is on file, the IRS must direct its communications to the representative, and the taxpayer is not required to attend meetings or answer questions directly. That separation matters. Taxpayers who speak to an examiner without preparation often volunteer information that expands the audit beyond its original scope. A representative controls what is produced, confirms that each request is within the scope of the notice, and keeps the record organized so the examiner's report is based on complete documentation.
Why privilege matters
Communications between a taxpayer and an attorney for the purpose of obtaining legal advice are protected by the attorney client privilege, which the IRS cannot override. Communications with an accountant have narrower protection. Federal law extends a limited privilege to advice from federally authorized tax practitioners, but that privilege does not apply in criminal matters and does not cover communications about the preparation of the return itself. When an audit raises the possibility of penalties for fraud or a referral for criminal investigation, the difference becomes decisive. An attorney can engage an accountant to work under the attorney's direction so that the accountant's work is covered by the attorney's privilege, an arrangement often called a Kovel engagement. A firm that combines legal and accounting capability can structure the engagement this way from the outset.
What happens after the examination
The examiner closes the audit in one of three ways. A no change letter means the return was accepted as filed. An agreed case means the taxpayer accepts the proposed adjustments and signs a report, after which the additional tax, interest, and any penalties are assessed. If the taxpayer disagrees, the IRS issues a letter, commonly called a 30 day letter, giving the taxpayer the right to protest to the IRS Independent Office of Appeals, which resolves most disputes without litigation. If no agreement is reached, the IRS issues a statutory notice of deficiency, and the taxpayer then has 90 days to petition the United States Tax Court, where the case can be heard without first paying the disputed tax. The IRS generally has three years from the filing date to assess additional tax, extended to six years where a substantial amount of income was omitted, and with no limit where a return was fraudulent or never filed.
Key Takeaways
The IRS initiates audits by mail; an unexpected phone call or email demanding payment is not an audit.
Filing Form 2848 places a representative between the taxpayer and the examiner and keeps the audit within its stated scope.
Attorney client privilege is broader than the accountant privilege, and the difference matters most when penalties or criminal exposure arise.
A disagreed audit can be taken to IRS Appeals and then to the Tax Court before any disputed tax is paid.
