By: James Pickett | 10/16/26
An IRS examination begins when a tax return is selected for additional review. Selection does not automatically mean the IRS suspects noncompliance.
The IRS uses several methods to identify returns for examination, including computer screening, statistical comparisons, and transactions involving other taxpayers under examination. Some examinations also focus on identified compliance risks.
In June 2026, the IRS released its fiscal year 2025 Data Book, reporting that it processed 271.4 million federal returns and supplemental documents. The agency also described expanded use of technology and analytics to identify areas of potential noncompliance.
The IRS initiates examinations by mail, rather than an unsolicited telephone call. The IRS audit letter generally identifies the return or tax period under examination, provides contact information, and explains the next steps.
Depending on the examination, the notice may identify specific items being questioned, request documentation, or schedule an initial meeting.
Businesses should carefully review all deadlines and instructions in their correspondence. The IRS maintains information about IRS Notices and Letters to help taxpayers identify correspondence and determine what action is required.
Before responding, the taxpayer should designate an examination coordinator, notify appropriate tax advisors, and preserve relevant records.
The initial response also provides an opportunity to establish a professional relationship with the examination team. Confirming the examination’s scope, communication procedures, and anticipated schedule can reduce uncertainty as the process moves forward.
The IRS division conducting an examination affects how the audit is organized, how issues are developed, and how disagreements are addressed.
The Small Business/Self-Employed (SB/SE) division generally examines small businesses, self-employed taxpayers, and other taxpayers within its jurisdiction. The Large Business and International (LB&I) division handles large and complex business taxpayers, including examinations involving significant international tax issues.
SB/SE examinations generally follow procedures outlined in Internal Revenue Manual (IRM) 4.10. Examiners review records, discuss potential adjustments, and provide taxpayers opportunities to explain their positions.
SB/SE examinations do not necessarily result in a formal notice of proposed adjustment. When the IRS proposes changes that remain unresolved, the taxpayer generally may receive a 30-day letter explaining the proposed changes and appeal rights.
LB&I follows a more formalized, issue-based approach under IRM 4.46 and Publication 5125.
Its examination procedures emphasize three phases: planning, execution, and resolution. Opening conferences establish expectations, identify relevant personnel, and help develop examination timelines.
LB&I examinations may involve specialists in international tax, transfer pricing, engineering, or other technical disciplines.
On September 29, 2026, the IRS updated IRM 4.46.1, revising certain responsibilities and procedures within the LB&I examination framework.
For taxpayers, the distinction matters because the examination strategy should reflect the assigned division’s procedures.
Understanding those requirements helps businesses anticipate information requests, manage internal resources, and identify opportunities to resolve disagreements before they advance.
An Information Document Request (IDR) is one of the primary tools revenue agents use to obtain records, explanations, and supporting evidence during an examination.
IDRs may request general ledger details, transaction documentation, contracts, accounting records, tax workpapers, or explanations of particular tax positions.
The way taxpayers manage these requests can significantly affect examination timing and scope.
Under LB&I procedures, examiners generally must discuss an IDR’s contents with the taxpayer before issuing it, identify the information needed, and establish a reasonable response deadline.
The examination plan should also identify key milestones, including anticipated completion dates and issue-development deadlines.
Taxpayers should carefully examine each request before agreeing to its scope.
Requests seeking all documents related to a broad category may warrant clarification. Narrowing an ambiguous request can reduce the burden on company personnel while helping agents obtain relevant information.
LB&I generally provides taxpayers with 10 business days to respond to an IDR, although shorter or longer periods may apply based on the examination circumstances. If a taxpayer does not provide a complete response by the deadline, the IRS may begin the graduated enforcement process with a Delinquency Notice, followed by a Pre-Summons Letter and, if necessary, a Summons.
Certain examinations and circumstances are excluded from the standard enforcement procedures.
Taxpayers should communicate potential delays before response deadlines and document any agreed extensions. IRS procedures allow an examiner or specialist, in specified circumstances, to grant an extension of up to 15 business days before the enforcement process begins.
A centralized IDR tracking system can help tax departments assign responsibilities, monitor due dates, coordinate responses, and maintain a complete examination record. This is an internal best practice rather than an IRS requirement.
The objective is not to resist legitimate information requests. It is to deliver accurate, responsive information without unnecessarily expanding the examination.
During an IRS field audit, revenue agents examine records, interview company personnel, evaluate transactions, and determine whether reported tax positions comply with applicable law.
Fieldwork involves more than confirming whether supporting documents exist. Agents must understand the underlying facts and determine how those facts affect the taxpayer’s obligations.
Revenue agents may review accounting systems, contracts, financial statements, tax returns, and supporting workpapers.
For complex issues, agents may consult technical specialists or IRS counsel. LB&I procedures specifically emphasize collaboration within issue teams and discussions with taxpayers as issues develop.
Consider an examination involving a research tax credit. The agent may investigate which activities qualify, how research expenses were calculated, and whether contemporaneous documentation supports the claimed amounts.
A disagreement over the underlying facts can become just as important as a disagreement over tax law.
As agents analyze the information, they may identify potential adjustments and communicate preliminary findings.
In LB&I examinations, Form 5701, Notice of Proposed Adjustment, summarizes a proposed tax adjustment, while Form 886-A, Explanation of Items, provides the detailed explanation supporting the adjustment.
Taxpayers should address factual misunderstandings before positions become entrenched. Clear explanations supported by relevant records can influence the agent’s conclusions.
An examination ultimately may close with no changes, agreed adjustments, or unresolved proposed adjustments.
For disputed issues, the taxpayer may have opportunities to pursue management review, applicable alternative dispute resolution procedures, or Appeals.
The earlier an issue is clarified, the more opportunities there may be to resolve it without additional proceedings.
Taxpayers cannot control which returns the IRS selects, but they can influence how effectively an examination proceeds.
Preparation, communication, and an understanding of procedural rights can make a meaningful difference at several stages.
For LB&I taxpayers, the examination plan provides an opportunity to establish timelines, clarify responsibilities, and discuss scope.
Businesses should identify potential areas of disagreement, assess documentation gaps, and consider which personnel will be needed.
Materiality discussions and risk assessments may also help focus the examination on significant issues.
Taxpayers can request clarification of ambiguous information requests, negotiate reasonable deadlines, and provide explanations that place documents in their proper context.
Responding precisely is important. Providing irrelevant information may introduce unnecessary questions without helping resolve the issue under examination.
Taxpayers should review the examiner’s factual assumptions and applicable legal authorities.
Regular meetings can identify disagreements early, allowing the parties to address them before formal adjustments are issued.
When discussions reach an impasse, management involvement may provide another opportunity for resolution.
Revenue agents generally have limited authority to compromise legal issues based on litigation uncertainty.
The IRS Independent Office of Appeals, however, may consider the hazards of litigation when evaluating disputed positions. This creates an additional opportunity to resolve disagreements without going to court.
Taxpayers generally have 30 days to respond to a 30-day letter, although the applicable notice controls. Missing deadlines can limit available options.
The strongest examination strategy combines complete documentation, technically supported positions, and timely engagement throughout the process.
Yes. Taxpayers may request a different examination location when the proposed arrangement creates practical difficulties. The IRS conducts in-person examinations at IRS offices, business locations, taxpayers’ homes, or representatives’ offices, depending on the circumstances. Requests should be discussed promptly with the examiner. Approval depends on examination needs, applicable procedures, and whether the alternative location is reasonable.
You may communicate directly with the assigned revenue agent, but businesses often benefit from designating an authorized representative or examination coordinator. This helps ensure consistent responses and reduces the risk of providing incomplete information. Form 2848 can authorize an eligible tax professional to represent you. Coordinating substantive discussions with your advisor is particularly important when complex issues arise.
The IRS generally examines returns filed within the previous three years. Under certain circumstances, examinations may extend further. The assessment period is generally three years, but substantial income omissions can trigger a six-year period. Fraudulent returns and certain unfiled returns may have no assessment limitation. Specific statutory exceptions and extensions can also affect the applicable period.
Businesses should organize filed returns, financial statements, general ledgers, reconciliations, contracts, invoices, and supporting tax workpapers. Documentation for significant deductions, credits, intercompany transactions, and uncertain tax positions deserves particular attention. Records should reconcile with reported amounts and be readily accessible. Establishing responsible personnel and a centralized document management process can also improve response times during the examination.
For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact Bennett Thrasher’s Tax Controversy practice, or call us at 770.396.2200.
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