IRS Letter 525: What It Means and What to Do

Why did I get Letter 525?

Common reasons include:

• A correspondence (mail) audit found items the IRS proposes to change
• Documents sent in response to an audit letter didn't fully support the items claimed
• No reply was received to an earlier audit letter (such as Letter 566 or CP75), so the IRS disallowed the items
• Credits, deductions or income items under examination couldn't be verified

What should I do?

1. Read the letter and the enclosed examination report to see which items the IRS proposes to change and why.
2. Compare the proposed changes with your return and records.
3. If you agree, sign and return the agreement form by the due date and pay, or arrange payment; if you don't pay, you'll receive a bill.
4. If you disagree, don't sign; send documents and an explanation supporting your position by the due date.
5. If you still disagree, request a conference with the examiner's manager or an Appeals conference before the date in the letter, following the letter and Publication 5.
6. If you need more time, fax or mail a request using the information on the letter before the due date; the IRS says it can ordinarily grant a one-time automatic 30-day extension for mail audits.

What documents do I need?

• Letter 525 and the enclosed examination report
• A copy of the tax return being examined
• Receipts, statements and records supporting each item the IRS proposes to change
• Copies of anything you already sent the IRS during the audit, plus the dates you sent it
• Form 2848 if a representative will handle the case

What should I avoid?

• Don't sign the agreement form if you disagree or plan to appeal.
• Don't let the date in the letter pass; Appeals requests generally need to be made before it.
• Don't send original documents; send copies.
• Don't hold back documents for Appeals; information should be given to the examiner first.

What if I disagree with Letter 525?

Send documentation and an explanation to the examiner, and you can ask for a conference with the examiner's manager. You can also request an Appeals conference before the date in the letter. Publication 3498-A says that if the amount is $25,000 or less per tax period you can make a small case request (Form 12203 or a brief written statement); otherwise a formal written protest is generally required (see Publication 5). If no agreement is reached, or you don't respond, the IRS will send a Statutory Notice of Deficiency by certified mail, giving you 90 days from the date on that notice to petition the U.S. Tax Court.

What happens if I ignore Letter 525?

If you don't reply, the IRS will generally send a Statutory Notice of Deficiency. If you then don't reach an agreement or petition the Tax Court in time, the tax is assessed and you'll receive a bill. Interest continues to accrue on any balance due, and a refund may be reduced or delayed.

What else should I know about Letter 525?

Letter 525 is the "30-day letter" that marks the end of a mail audit. It is your main chance to get an independent Appeals review before a statutory notice of deficiency is issued. It is also the letter the IRS generates when you didn't reply to an initial audit letter such as a CP75 or Letter 566-S (IRM 4.19.20), so it can be the first letter some people actually read. In some programs it serves as the initial contact letter with the report enclosed. Under IRM 4.19.13, a first request for more time is automatically granted an extra 30 days from the original response date, except when 180 days or less remain on the assessment statute.