By Jon Call, EA — Enrolled Agent & NTPI Fellow • CLAW Tax Group
An IRS audit is a formal examination of your tax return to verify that the income, deductions, and credits you reported are accurate. Most audits are not random. They are targeted — triggered by specific items on your return that the IRS has flagged as inconsistent, unusual, or outside statistical norms for your income level.
Receiving an audit notice does not mean you did something wrong. It means the IRS has questions. How you respond to those questions determines the outcome.
Types of IRS Audits
Correspondence Audit
The most common type. The IRS sends a letter requesting documentation to support a specific item on your return. You respond by mail with supporting documents. If the documentation satisfies the IRS, the audit closes with no change. If not, they propose an adjustment.
Correspondence audits sound straightforward. They are not always. Responding incorrectly, providing too much information, or failing to respond at all can escalate the matter or result in an unfavorable adjustment that was avoidable.
Office Audit
You are asked to appear at an IRS office with documentation related to specific issues on your return. Office audits typically involve more complex issues than correspondence audits — multiple deduction categories, business income, or situations where the IRS wants to ask questions directly.
Field Audit
An IRS Revenue Agent comes to your home, your business, or your representative’s office. Field audits are the most comprehensive type. They typically involve businesses, self-employed taxpayers, or individuals with complex financial situations. The Revenue Agent has broad authority to examine records, interview you, and expand the scope of the examination if they find issues.
If the IRS is conducting a field audit, you need professional representation before you say a word.
What Triggers an Audit
The IRS uses automated systems to compare returns against statistical norms for similar taxpayers. Common triggers include:
- Unusually high deductions relative to reported income — particularly for charitable contributions, business expenses, and home office deductions
- Schedule C losses — especially recurring losses that offset other income year after year
- Large cash transactions — income from tip-based work, cash businesses, or Form 1099 income that does not match bank records
- Cryptocurrency activity — a growing audit focus area
- Round numbers — estimated figures on a return draw scrutiny
- Prior audit history — taxpayers who have had adjustments in prior years are more likely to be selected again
- Mismatch between reported income and information returns — if the income on your return does not match 1099s and W-2s the IRS already has on file, the system flags it automatically
- Real estate activity — rental losses, depreciation, and cost segregation are examined closely
Your Rights During an Audit
You have substantive rights as a taxpayer under the Taxpayer Bill of Rights. Among the most important:
- The right to representation — you may have a qualified professional represent you before the IRS at any point during the audit process. You do not have to speak to the IRS directly.
- The right to know why the IRS is asking for information and how it will be used
- The right to appeal disagreements — if you do not agree with the IRS’s proposed adjustments, you have the right to appeal to the IRS Office of Appeals before any assessment becomes final
- The right to finality — the IRS generally cannot re-audit a tax year it has already examined and closed
The Statute of Limitations on Audits
Three years — The standard limitation period. The IRS has three years from the later of the return due date or the date the return was filed to assess additional tax.
Six years — If you omitted more than 25% of your gross income from a return, the IRS has six years to audit that year.
Unlimited — If you filed a fraudulent return or failed to file a return entirely, there is no statute of limitations. The IRS can assess additional tax at any time.
Why Self-Representation Is a Mistake
Taxpayers who represent themselves in IRS audits frequently make the situation worse — not because they are dishonest, but because they do not know the rules of the process.
Providing too much information. The IRS asked about one item. You bring a full box of records and volunteer explanations for things they were not looking at. Every piece of information you provide is an opportunity for the IRS to find another issue. A representative controls what goes to the IRS and why.
Answering questions you do not have to answer. IRS agents are trained interviewers. Casual statements made during an audit interview can be used to expand the scope of the examination or support a proposed adjustment. You have the right to representation. Use it.
Missing deadlines. Audit response deadlines are not flexible. Missing one can result in an automatic assessment or loss of appeal rights.
Not knowing what is actually required. The IRS may request documentation it is not legally entitled to, or frame a request more broadly than the actual requirement. A representative knows the difference.
Agreeing to adjustments that are wrong. Taxpayers under pressure sometimes agree to proposed adjustments that a qualified practitioner could have successfully challenged. Once you sign an agreement form, the assessment becomes final.
Audit Outcomes and What Comes Next
An audit concludes in one of three ways:
No change — The IRS is satisfied with your documentation. The return is accepted as filed.
Agreed adjustment — You and the IRS agree on a change to the return. A tax bill is issued for the additional amount, including interest and potentially penalties.
Disagreed adjustment — You dispute the IRS’s proposed changes. From here, you have the right to appeal to the IRS Office of Appeals, an independent body that resolves disputes without litigation. If Appeals does not resolve it, you have the right to petition the United States Tax Court.
Audit Reconsideration: A Second Chance — With No Guarantees
If an IRS audit has already concluded and an assessment has been made, the formal appeal window may have passed. Audit reconsideration is the administrative process for asking the IRS to revisit that assessment — but it is not a right, it is not a formal proceeding, and it comes with no guarantee of any outcome.
When audit reconsideration is available:
- New information — You have documentation or evidence that was not available or not presented during the original examination, and that evidence would materially affect the outcome. This is the most common basis.
- Substitute for Return — The IRS filed an SFR on your behalf and you now have a properly prepared return that reflects deductions, credits, and accurate income the SFR did not account for.
- You did not appear — You missed the audit entirely and the assessment was made in your absence with no opportunity to present your position.
- Computational or processing error — The IRS made a mathematical or procedural error in calculating the assessment.
Why this process is more complicated than it sounds:
Audit reconsideration is governed by IRM 4.13 and is entirely administrative. There is no formal hearing. There is no assigned officer with a deadline. There is no Appeals Division involvement by right. The IRS reviews the submission — typically a letter plus supporting documentation — and decides whether to accept, modify, or deny the request. That decision can take months. Or longer. And the IRS is not required to tell you why they denied it.
No timeline. The IRS processes reconsideration requests at their own pace. There is no regulatory clock running. Cases can sit for extended periods without movement, and there is limited recourse to compel action.
No guaranteed forum. Unlike a CDP hearing, which puts you in front of the Appeals division with specific rights attached, audit reconsideration sends your documentation back to Compliance — the same function that made the original assessment decision. The bar for reversing a prior examiner’s conclusion is real.
Scope can expand. During a reconsideration review, the IRS can identify new issues in the materials you submit. A reconsideration request intended to resolve one problem can open others. Every document submitted is additional information the IRS now has.
Submission quality is everything. Because there is no hearing and no oral argument, the written submission is your entire case. An incomplete request, a poorly organized package, or documentation that is accurate but presented without the right framing is likely to be denied. The IRS examiner’s first impression of the submission may be the only impression.
What a submission needs to include: A clear written explanation of the grounds and specific items being disputed. All new documentation organized to correspond directly to each item at issue. A copy of the original audit report (Form 4549) and related notices. A Power of Attorney if you are represented. The package must be complete on the first submission. Counting on a second opportunity is not a strategy.
If reconsideration is denied: Options exist but narrow. Depending on where you are in the process, you may be able to request an Appeals conference, petition the United States Tax Court, or file a refund suit in federal district court. None of these become easier after a failed reconsideration request.
Audit reconsideration is sometimes the right path — particularly when a taxpayer missed an audit, when an SFR grossly overstated the liability, or when genuinely new evidence changes the picture. But the process is vague by design, the outcome is uncertain by default, and the stakes of a poorly executed submission are real. Submitting without professional guidance — with the wrong documentation, the wrong framing, or an incomplete package — is unlikely to end well and may close options that otherwise remained open.
This is not a DIY process.
Minnesota Department of Revenue (MN DOR) Audits
IRS audits and Minnesota Department of Revenue (MN DOR) audits are separate processes — but they are often connected, and both can run simultaneously.
The MN DOR audits multiple tax types independently: individual income tax, corporate franchise tax, sales and use tax, and withholding tax. Unlike the IRS, which primarily audits income, the MN DOR will pursue sales tax nexus disputes, uncollected use tax, multi-year income discrepancies, and pass-through entity issues with equal aggression. In practice, MN DOR auditors tend to be thorough and persistent across all of these areas.
Federal-state information sharing. The IRS and MN DOR share data. If the IRS audits your federal return and proposes an adjustment, that change is reported to the MN DOR. Minnesota then has the right to assess additional state tax based on the federal change. This means an IRS audit that results in an agreed adjustment can trigger a separate MN DOR assessment without any additional review of your state return. The reverse can also happen — a MN DOR audit that uncovers unreported income or disallowed deductions can be referred to the IRS.
MN DOR audit types:
- Individual income tax audits — Multi-year examinations of reported income, deductions, and credits. MN DOR may audit multiple tax years simultaneously.
- Sales and use tax audits — Often the most complex and most contentious. The MN DOR scrutinizes whether sales tax was collected on all taxable sales, whether exempt sales are properly documented, and whether use tax was remitted on taxable purchases where sales tax was not charged.
- Corporate franchise tax audits — Minnesota’s corporate income tax, including apportionment disputes for businesses operating in multiple states.
- Withholding tax audits — Whether the correct amounts were withheld and remitted for employees, and whether worker classification was handled correctly.
The appeals process differs. If you disagree with a MN DOR assessment, the appeals path is different from the IRS. MN DOR has its own internal appeals process, and disputes that cannot be resolved administratively go to the Minnesota Tax Court — a specialized court that handles state tax matters exclusively.
Representation before the MN DOR requires familiarity with Minnesota tax law, the MN DOR audit process, and the state appeals system. These are not the same as the federal system. A representative who handles only IRS matters is not equipped to handle a MN DOR audit effectively.
CLAW Tax Group handles both federal and state audit defense. If you have received a notice from the Minnesota Department of Revenue, do not assume it is routine. Engage a representative who knows the MN DOR process before you respond.
What We Do
When a client comes to us with an audit notice, the first step is understanding exactly what the IRS or MN DOR is examining, why, and what documentation is available to support the return as filed.
We handle all communication with the IRS on your behalf. You do not attend interviews or speak with IRS agents directly. We control what information goes to the IRS, respond to requests strategically, and advocate for the most favorable outcome the facts support.
If the IRS proposes adjustments we believe are incorrect, we take the case to Appeals. If necessary, we coordinate Tax Court representation through our affiliated legal team.
Call or text: (651) 323-2255
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CLAW Tax Group is a tax resolution firm based in White Bear Lake, Minnesota, serving clients in all 50 states. Affiliated with Wildes At Law.