Tax Relief

How to Respond to IRS Examination Report (IRS Letter 525)

If you have recently undergone an audit with the IRS, you will receive an examination report in the mail (Letter 525). This report will share the proposed changes to your tax return which may include additional tax and penalties. If you are wondering what to do next, here’s some guidance on how to respond to IRS Examination Reports.

What is IRS Letter 525?

IRS Letter 525 is sent after a tax examination (audit) to explain the changes that the IRS proposes to your tax return. Depending on how the changes impact the amount of tax due, the letter may also request payment or inform you of an adjusted refund.

How to respond to IRS Letter 525 – IRS Examination Report

  1. Before responding, review the “Explanation of Items” section. Take note of the items which will be adjusted and why.

    Letter 525

  2. Next, look at the “Income Tax Examination Changes” and “Calculation Sheets.” These will display the recalculation of the items in question and the impact they will have on your return.
  3. Further, take note of the “Interest Computation” section which will disclose the interest you owe and how it was calculated.
  4. If you owe taxes, penalties, and/or interest, there will also be a due date for the amount you owe.
  5. Once you have reviewed all of the information, determine if you agree or disagree with the report.
  6. If you agree, update your tax records for your own bookkeeping and sign the “Consent Page.” Send in the “Consent Page” along with a copy of the “Explanation of Notice Response Requirements” letter to the IRS. If you owe money, you will also have to make a payment or make arrangements to pay.
  7. In the case that you disagree, you can appeal the decision within 30 days of the notice date. To do so,  call the IRS at the number listed on the notice. Or, if you prefer, you can create a signed statement explaining why you disagree. You will need to mail or fax it along with the “Explanation of Notice Response Requirements” and “Income Tax Examination Changes.”

If you mail or fax your response:

  • Include documents supporting your claim.
  • Write your SSN, last name, and the tax year on the top of each page.
  • List your phone number and the best time to call you.
  • And make a copy of the correspondence to put in your records.

After receiving your appeal, the IRS may agree with the proposed changes or may schedule another audit.

Small case request vs. formal written protest

If you contest proposed adjustments that amount to less than $25,000 in additional tax and penalty liabilities, you can submit a Small Case Request. The process is quicker and easier. To do so, fill out Form 12203 (a Request for Appeals Review), prepare a brief written statement, or complete the form referenced in your letter.

If you don’t qualify for a Small Case Request, you will need to write a formal written protest. See the requirements here. Once complete, send the protest to the address on your letter and look out in the mail for a response.

What happens if you don’t respond to an IRS Examination Report

If you don’t respond to an IRS Examination Report within 30 days, you will receive another notice (Letter 1912) which serves as a final warning. It gives you 15 days to respond. If you don’t respond, you will lose your chance to dispute your case with the auditor. The IRS will then issue a notice of deficiency which gives you 90 days to petition the tax court.

Read the definitive guide to IRS tax notices and letters.

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