What arrives with Letter 525
The letter comes stapled to the examination report (Form 4549) showing every proposed adjustment, the recalculated tax, and penalties. Signing the report closes the audit on those terms. Doing nothing for 30 days sends the case toward a Notice of Deficiency. Protesting sends it to Appeals, an entirely different audience.
The protest window
A written protest within 30 days preserves Appeals rights. For disputed amounts over $25,000, the protest requires specific content: facts, law, and position statement. Under $25,000 can use a simpler small-case request.
- Identify each adjustment you dispute and why
- State the facts supporting your position, with documents attached
- Cite the authority you rely on where you have it
- Sign under penalties of perjury
Why Appeals matters
Appeals is independent of the examination team. They consider hazards of litigation and can settle for less than the examiner's proposed amount. Most audit disputes resolve at Appeals rather than Tax Court. An examiner is graded on applying the rules as written; an Appeals officer is allowed to weigh the chance the IRS loses in court, which is where negotiating room comes from.
The timeline from here
Appeals conferences are scheduled months out, usually by phone. Expect a request to extend the assessment statute (Form 872) if the clock is short; whether and how to sign one is a judgment call worth making deliberately. If Appeals doesn't produce agreement, the Notice of Deficiency follows and the 90-day Tax Court window opens.
Common questions
- What if I agree with part of the audit?
- Sign the agreed portion and protest the rest. Partial agreement is standard.
- Should I just wait for the 90-day letter instead?
- Usually no. Appeals is where most cases settle, and skipping it means your first real negotiation happens after a Tax Court petition, with more time and cost baked in.
- Can Appeals raise new issues against me?
- As a matter of policy Appeals doesn't raise new issues; it works the adjustments the examiner proposed. The dispute you bring is the dispute they hear.
- Do I keep accruing interest during Appeals?
- Yes, interest runs on whatever is ultimately owed. If some liability is clearly coming, an advance payment marked as a deposit stops interest on that amount while the dispute continues.
Related
IRS Audit Representation
Herman Viglione, EA, represents taxpayers in IRS and state audits. Correspondence, office, and field audits handled remotely for clients in any state.
Responding to an IRS Notice of Deficiency
The Notice of Deficiency (90-day letter) is your window to petition Tax Court without paying first. Pay, petition within 90 days, or the tax becomes final.
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IRS Audit Reconsideration
Audit reconsideration reopens a default audit assessment when you have new documentation or never received the original notice. What Form 12661 requires.
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