IRS Letter 525: 30-Day Letter After an Audit

Letter 525 is the IRS's General 30-Day Letter. It arrives at the end of an audit, usually one conducted by mail, and it tells you the examiner proposes to change your tax return. You have 30 days to agree or to start the process of disagreeing. This is the last relatively informal point in the audit before the IRS moves to a formal notice of deficiency.

What is in the package

The letter explains that the IRS reviewed your return and believes changes are necessary. The Form 4549 shows the proposed adjustments, any penalties, and the examiner's explanations. Read these line by line. Compare each change with the documents you gave the examiner earlier. See Letter 566 for how many audits start.

Your choices within 30 days

1. Agree. Sign and return the agreement form. The IRS will assess the tax and interest, and you can set up payment. If you agree only in part, the examiner can discuss that with you.
2. Disagree and send more information. Respond by the due date with documents or a written explanation. Be specific: which line, why, and what proves it.
3. Request more time. If you cannot respond by the due date, call the number on the letter before the date passes.
4. Ask for a conference with the examiner's manager. If the examiner still proposes changes after you provide information, you can request an informal conference with the manager before the response date.
5. Request an Appeals conference. If you still disagree, you can ask the IRS Independent Office of Appeals to review. Make the request in writing before the response date and explain your reasons. The IRS says that generally you must request an Appeals conference within 30 days of the letter date.

Small case or formal protest

IRS Publication 5 explains how to ask for Appeals. If the total tax and penalties for each tax period in the letter are $25,000 or less, you can make a small case request with a brief written statement listing the disputed issues, or by using Form 12203, Request for Appeals Review. If the amount for any period is more than $25,000, a formal written protest is required. A formal protest is also required for partnership and S corporation cases regardless of the dollar amount. A protest includes facts, law or authority supporting your position, and a statement under penalties of perjury.

If you do not respond

The IRS may disallow the items you claimed and issue a notice of deficiency. For a mail audit that is Letter 3219, and for an in-person audit it is Letter 531. The notice gives you 90 days to petition the U.S. Tax Court, or 150 days if the notice is addressed to a person outside the United States. See notice of deficiency. If you do not petition, the IRS assesses the tax and sends a bill.

Interest and penalties

Interest runs on the proposed deficiency, and the report may include a penalty such as the accuracy-related penalty. Agreeing and paying quickly stops further interest on the amount paid. You can also ask for penalty relief; see reasonable cause penalty relief.

Common mistakes

• Not reading Form 4549 carefully. Penalties and computations sometimes carry errors.
• Calling instead of putting the request for an Appeals conference in writing.
• Waiting until the last day to ask for more time.
• Sending a protest that lacks facts, law or the signed perjury statement.
• Failing to preserve supporting records. Review how long to keep tax records.
• Treating Letter 525 as the end. Appeals and Tax Court remain available if you respond on time.

When to involve a CPA

An audit that has reached a 30-day letter is exactly when a CPA's help pays off. A CPA can review Form 4549, rebuild the missing support, decide between an informal conference and a protest, and draft the protest. With a signed Form 2848, we can speak with the examiner and the manager for you. See IRS audit representation and IRS appeals.

How we can help

We review the Letter 525 and the examiner's report, identify where the support is weak, and prepare the response. See our IRS representation services or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.