Tax Audit Documentation Checklist

Pull the notice (commonly Letter 2205-A for field exam, Letter 566 for office exam, or CP2000 for correspondence). Note the response deadline carefully — most IDRs run 30 days from notice date, not receipt date, and missing the date moves the case to default assessment.

Correspondence audits are document exchanges; office audits require an in-person visit to an IRS office; field audits put the examiner at the client's place of business. Classification drives the engagement scope and fee estimate.

Scope representation as a separate engagement from any tax prep work — representation hours are not covered under the original 1040 fee. Cap hours or set a retainer for field exams, which routinely run 60+ hours.

File Form 2848 with the CAF unit before contacting the examiner. Specify exact tax years and form numbers — generic 'all years' authorizations get rejected. CAF processing takes 5-7 business days; faxing directly to the assigned examiner is faster.

Match the taxpayer's legal name and TIN or EIN to the IRS notice exactly. Mismatches between notice and return often indicate identity theft or a CP2000 cross-reference error worth flagging before responding to substantive items.

Pull the prior-year return and any 1040-X amendments. Note carryforwards — NOL, capital losses, charitable contribution carryovers, AMT credits — that may be challenged in the audit year and require multi-year substantiation.

Review the return for Schedule C/E/F activity and foreign accounts disclosed on Schedule B Part III. These flags drive whether the business-expense and foreign-reporting sections of this workflow apply, and which IDR items the examiner will request.

Pull all W-2s, 1099-NEC, 1099-MISC, 1099-K, 1099-DIV, 1099-INT, and K-1s for the audit year. Order an IRS Wage and Income Transcript and reconcile — examiners run this same transcript, and any missing source document becomes their first lead question.

Tie total deposits across all bank accounts to reported gross receipts. Document non-income deposits — loan proceeds, account transfers, return of capital, gifts. Unexplained deposits are the most common adjustment in small-business audits.

Build a workpaper that traces each income line on the return to its source document. Cross-reference K-1s to Schedule E Part II and 1099-Ks to gross receipts on Schedule C, including any reconciling items for returns, refunds, or fees withheld by the processor.

Pull mortgage interest 1098s, property tax payment records, state income tax payments, and medical expense receipts. Confirm the $10K SALT cap was respected on the original return.

For cash contributions over $250, pull the contemporaneous written acknowledgment from the donee. For non-cash over $500, confirm Form 8283 was attached. Non-cash over $5,000 needs a qualified appraisal — without it the deduction is fully disallowed regardless of fair market value.

Review credits claimed (CTC, EITC, education credits, energy credits, R&D, ERC) and pull the underlying eligibility documentation. ERC claims from 2020-2021 are an active IRS focus area — pull the original PPP cross-reference workpaper and the gross receipts decline calculation.

Pull invoices, canceled checks, and credit-card statements for material expense categories. Examiners typically test the largest 5-10 categories using stratified sampling — focus substantiation effort there first rather than spreading thin across every line.

Tie the Schedule C/E/F to the QuickBooks or Xero trial balance for the audit year. Reconcile any book-to-tax differences (M-1 adjustments) with supporting workpapers — meals 50%, club dues, fines, owner draws miscoded as expense.

Pull Form 4562 and the underlying depreciation schedule. Confirm placed-in-service dates, basis, method, and convention. Document Section 179 elections, bonus depreciation claims, and any dispositions during the year with sale price and accumulated depreciation.

Pull EFTPS or Direct Pay confirmations for each of the four quarterly payments. Document dates and amounts; safe-harbor calculations (110% of prior-year liability for high-income taxpayers) protect against underpayment penalty assertions.

Confirm 941 quarterly returns and the 940 annual return were filed and paid for the audit period. Examiners frequently expand into payroll if 1099-NEC vs W-2 worker classification looks aggressive — pull the worker-classification analysis if any 1099s exceeded $50K to a single recipient.

Pull every IRS notice received in the prior 24 months — CP2000s, CP504s, AUR notices. Unaddressed CP2000s often become audit fodder; the examiner already has them in their case file and will ask why they were not resolved.

Confirm FinCEN Form 114 was filed for any year an aggregate foreign account balance exceeded $10,000 at any point during the year. FBAR penalties are separate from income tax and run up to $10K per non-willful violation per account per year — review every signature-authority account.

Confirm Form 8938 was filed if FATCA thresholds were met ($50K single / $100K joint year-end, or $75K / $150K any time during the year for domestic filers). Form 8938 is in addition to FBAR, not a substitute — clients commonly file one and skip the other.

Document foreign-source income and any foreign tax credit support on Form 1116. Pull copies of foreign tax return filings or paid-tax receipts in the source-country currency, with translations and exchange-rate workpapers.

Index the response package with bates numbering tied to each IDR item number. Examiners process indexed responses faster and are demonstrably less likely to expand scope when the package shows the firm has the documentation organized and complete.

Tax partner or signing EA reviews the indexed package against the IDR before submission. Document any positions taken, supporting authority cited, and items intentionally withheld pending privilege review.

Submit through the IRS Document Upload Tool or the examiner's preferred secure-messaging method. Keep the portal confirmation receipt or certified-mail tracking in the workpaper file. The submission date starts the clock on the examiner's reply.