When a client's return moves beyond a correspondence inquiry into an office or field examination, the representation dynamic changes completely. A correspondence examination resolves primarily through documents. An office or field examination involves a live working relationship with an IRS examiner, a structured information-request process, and a negotiation over proposed adjustments that can span months. Practitioners who have represented clients through field examinations consistently report that the outcome depends less on the strength of the underlying return than on how the representation is managed from the first contact forward.
This guide covers the full lifecycle of IRS office and field examination representation: the triggers and selection process, the initial contact letters, the structural difference between a Tax Compliance Officer (office examination) and a Revenue Agent (field examination), the Form 2848 filing and CAF registration process, IDR management, scope control, substantiation standards, the Revenue Agent Report and 30-day letter, penalty abatement at the examination level, and closing agreements. It pairs with the upstream correspondence examination guide and the downstream IRS Appeals guide.
All IRM citations and procedural references in this guide should be verified at IRS.gov before relying on them in any specific examination. This guide is informational and does not constitute legal advice. Complex examinations involving potential fraud, criminal referral risk, or large-dollar adjustments require experienced representation, and practitioners should evaluate whether legal counsel is warranted in those cases.
Examination Types and What Triggers Each
The IRS conducts three types of examinations, each with a different scope, staffing level, and typical trigger. Understanding which type has been initiated and why is the first piece of information a practitioner needs before the representation begins.
The correspondence examination is handled entirely by mail and covers narrow, specific issues typically identified through document-matching programs (mismatched 1099s, incorrect credits, math errors). For a complete guide to correspondence examination response procedures, see the IRS correspondence examination practitioner guide, which covers CP notice response timelines, document assembly, and escalation procedures.
The office examination is conducted at an IRS office. It is assigned to a Tax Compliance Officer (TCO) and typically covers a defined set of issues: Schedule C business expenses, certain deductions, credits claimed on the return. The scope is narrower than a field examination and the examination plan is generally more standardized. Office examinations are often triggered by specific line items or issue patterns, not a comprehensive review of the return.
The field examination is conducted at the taxpayer's place of business or, at the practitioner's election, at the practitioner's office. It is assigned to a Revenue Agent and typically involves a more comprehensive review of the return. Field examinations are common for self-employed individuals with complex Schedule C activity, partnerships, S corporations, C corporations, and taxpayers with substantial rental or investment income.
Practitioners handling partnership clients subject to a BBA field examination should also review our K-1 Allocation Errors: BBA vs. Non-BBA Amendment Guide for the corrective filing workflow.
How the IRS selects returns for examination
The IRS uses statistical models, including the Discriminant Function System (DIF), to identify returns for examination. The specific selection criteria are not publicly disclosed; the IRS does not publish the DIF formula or the specific score thresholds that trigger examination. Practitioners should not attempt to characterize specific return attributes as DIF triggers, because the IRS's actual selection algorithms are not available in the public domain.
Beyond the statistical models, IRS examination selection is also driven by: document-matching programs (information returns that do not match the filed return), information from third parties (including related-party examinations and informants), compliance initiatives targeting specific industries or issues, and referrals from other IRS functions.
The Initial Contact: Letter 2205-A and Letter 2205-B
The initial examination contact letter tells the practitioner, before any other communication, which type of examination has been initiated and what the IRS expects as a first response.
Letter 2205-A: Office Examination Contact
Letter 2205-A is the initial contact letter for an office examination. It requests that the taxpayer (or their authorized representative) contact the IRS to schedule an appointment and typically identifies the specific issues or years under examination. The letter includes a document request, listing the records the examiner wants the taxpayer to bring to the appointment. The first action upon receiving a 2205-A is to file Form 2848 so that the practitioner, not the taxpayer, controls the scheduling call and all subsequent contacts.
Letter 2205-B: Field Examination Contact
Letter 2205-B is the initial contact letter for a field examination. It identifies the assigned Revenue Agent and requests that the taxpayer contact the agent to schedule an initial meeting. The letter typically includes an initial IDR (Form 4564) requesting broad categories of records. As with the 2205-A, the immediate action is to file Form 2848. After the authorization is in place, the practitioner contacts the Revenue Agent to introduce themselves, confirm the examination scope (years and issues), and begin the scheduling process.
DO NOT MISS THE INITIAL CONTACT RESPONSE WINDOW
The initial contact letter has a response date. Failing to respond within the stated window does not stop the examination; it gives the agent grounds to proceed without your input on scheduling and scope. The practitioner's first call to the agent sets the tone for the relationship and is an opportunity to establish that the representation will be organized, professional, and complete. Missing the response window costs that opportunity.
Revenue Agent vs. Tax Compliance Officer: Structural Differences and Representation Implications
The two primary examination personnel a practitioner will encounter are the Revenue Agent (RA) and the Tax Compliance Officer (TCO). These are different IRS job classifications with different training, examination scope, and authority. Knowing which one you are dealing with shapes every aspect of the representation strategy.
Revenue Agent
Revenue Agents handle field and office examinations involving the most complex returns and the highest potential adjustment amounts. They typically have accounting or finance backgrounds and receive more specialized IRS training than TCOs. Revenue Agents have broader examination authority and typically prepare more detailed examination plans. A Revenue Agent assignment signals that the IRS has identified the return as warranting significant examiner time. Representation strategy in a Revenue Agent examination needs to account for the agent's technical training and the likelihood of a comprehensive review across multiple issues.
Tax Compliance Officer
Tax Compliance Officers handle office examinations of individual returns with less complexity. TCOs work from a more standardized examination checklist for the specific issues identified at intake. Because TCO examinations are more structured and narrower in scope than Revenue Agent field examinations, the practitioner's primary goal is to maintain that narrow scope. A TCO who is presented with organized, complete responses on the specific identified issues is less likely to expand the examination beyond the original scope than one who receives disorganized or incomplete responses that raise additional questions.
Filing Form 2848 as Your First Move
Before any substantive response to an examination notice, the practitioner must be properly authorized. Filing Form 2848 (Power of Attorney and Declaration of Representative) is the first move in every examination representation. Without a processed Form 2848, the IRS will continue to contact the taxpayer directly, and the taxpayer may respond without the practitioner's guidance.
CAF unit processing and e-file submission
Form 2848 is processed by the IRS Centralized Authorization File (CAF) unit. Once processed, the authorization is entered in the CAF system, and the IRS assigns a CAF number to the practitioner (if they do not already have one). All future examination-related correspondence, IDRs, and contact attempts should then go to the practitioner. The fastest submission method is through IRS e-services, which posts the authorization to the CAF system more quickly than fax or mail submission.
Confirm CAF unit processing before the first agent contact
Do not assume the Form 2848 is active just because it was submitted. CAF unit processing takes time, and the agent may not have the authorization on file when the practitioner makes the initial call. Confirm processing status through IRS e-services before making the initial contact call to the agent. If the examination has a short initial response deadline and CAF processing has not completed, fax the Form 2848 directly to the examining group and inform the agent during the initial call that the authorization has been submitted and is pending CAF processing.
Scope of the Form 2848 authorization
The Form 2848 should cover all years under examination and should authorize the specific acts relevant to the representation: the ability to receive and inspect confidential tax information, execute closing agreements, and substitute or add representatives if applicable. Review the scope boxes carefully. A Form 2848 that is too narrow may limit the practitioner's ability to act at a critical point in the examination.
The Examination Plan: Requesting and Using the Agent's Plan
Revenue Agents prepare an examination plan that identifies the issues they intend to examine and the records they will need to examine each issue. The examination plan is an internal IRS document, but practitioners can and should request it. The examination plan tells the practitioner exactly where the agent intends to focus, which allows for targeted preparation and may surface issues the practitioner can address proactively rather than reactively.
When reviewing the examination plan, note: which issues are listed (and which are not), the order in which the agent plans to address them, and any issue that appears on the plan but was not referenced in the initial IDR. Issues on the plan but not yet in an IDR are issues the agent has identified as concerns but has not yet formally pursued. This is the practitioner's window to gather substantiation proactively.
The examination plan is also a scope-control tool. If the agent's plan includes issues that were not identified in the initial contact letter, the practitioner has grounds to discuss whether those issues are within the appropriate examination scope. An agent who is attempting to expand the examination beyond the original scope should be met with a documented, professional inquiry about the basis for the expansion.
Information Document Request (IDR) Management: Anatomy, Response Strategy, and Deadline Negotiation
The IDR (Form 4564) is the primary tool the IRS uses to obtain documents and information during an examination. How the practitioner responds to IDRs is often the single most consequential factor in the examination outcome. An IDR response that is over-inclusive invites scope expansion; an IDR response that is under-inclusive triggers follow-up requests and gives the agent grounds to draw adverse inferences.
Anatomy of an IDR
Each IDR identifies the taxpayer, the tax year(s) under examination, and a list of specific requests numbered sequentially. The requests may ask for: specific documents (bank statements, contracts, receipts), records of specific transactions, explanations of specific return positions, or general categories of records related to a business activity. The IDR includes a response date. Verify current IDR timeline requirements in IRM 4.46.4 at IRS.gov; the IRS may negotiate IDR deadlines in appropriate circumstances.
The narrow-response principle
Respond to each IDR item precisely and completely, addressing exactly what was requested. Do not volunteer documents or information beyond the specific scope of each request. A practitioner who provides unrequested documents, hoping they will demonstrate overall compliance or good faith, often creates more problems than they solve: unrequested materials may surface issues the agent had not yet identified or intended to examine.
Negotiating IDR deadlines and scope
If the IDR response deadline is unreasonable given the volume of records requested, contact the agent before the deadline to request an extension. Most agents will grant reasonable deadline extensions for organized responses. Denying a reasonable extension request and then citing non-compliance as a basis for an adverse inference is not defensible IRS conduct, but the practitioner needs to make the extension request formally and in writing. If an IDR request is overly broad, ambiguous, or covers materials arguably outside the examination scope, address the scope question in writing before the response deadline.
DOCUMENT EVERY IDR RESPONSE
Retain a complete copy of everything submitted in response to each IDR. Note the date of submission and the method (fax, mail, in-person). Confirm receipt with the agent in writing after each submission. This documentation protects the practitioner if the agent later claims a document was not provided, and it creates the record for any Appeals or Tax Court proceeding that might follow.
Controlling Examination Scope: Preventing Issue Expansion
Scope expansion is one of the primary risks in a field or office examination. A Revenue Agent who begins an examination focused on Schedule C business expenses and finds records problems may seek to expand the examination to other years, other entities, or other issues. Preventing that expansion, or at least managing it, is a core representation function.
IRS Publication 1 and taxpayer rights
The IRS is required to provide taxpayers with Publication 1 (Your Rights as a Taxpayer) at the beginning of an examination. Publication 1 establishes the taxpayer's right to know why the IRS is asking for information, the right to know what will happen if records are not provided, and the right to be treated professionally and fairly. These rights do not prevent all scope expansion, but they establish a baseline expectation. Practitioners who encounter agents attempting to expand scope beyond the original contact letter should cite the original scope, the examination plan (if available), and the principle that examinations should be conducted efficiently and without unnecessary burden on the taxpayer.
Requests for records beyond the IDR scope
If the agent requests documents or information during an examination meeting that are not covered by the existing IDR, the practitioner should not produce them on the spot. Instead, ask the agent to issue a formal IDR for those items. This creates a written record of the request, gives the practitioner time to evaluate the request and its scope implications, and prevents the examination from expanding informally through unrecorded oral requests. An agent who declines to issue a formal IDR for additional materials is attempting to expand the examination outside the structured process the IRM requires.
Statute of limitations awareness
The standard statute of limitations for IRS assessment is three years from the later of the return filing date or the return due date. A six-year statute applies when there is a substantial omission of income (more than 25% of gross income). There is no limitations period for fraudulent returns or non-filers. Practitioners should track the statute for each year under examination and be alert to requests to extend the statute (Form 872). Agreeing to extend the statute is often appropriate, but it should be a considered decision, not a reflexive one.
Substantiating Deductions: Documentation Standards by Issue Category
The documentation the IRS expects to substantiate deductions varies by the category of expense. Practitioners preparing for an examination should audit the client's records against these standards before the examination meeting, identifying gaps and developing a response strategy for areas where documentation is incomplete.
Business expenses: cash vs. accrual method
For cash-method businesses, deductions are substantiated by showing payment (cancelled checks, bank statements, credit card statements, receipts) during the tax year. For accrual-method businesses, deductions are substantiated by showing the liability was incurred and fixed during the tax year, regardless of when payment was made. The documentation required differs: cash-method substantiation is primarily payment evidence; accrual-method substantiation requires evidence of the obligation, the amount, and the accrual date. Practitioners should confirm which method the client uses and gather documentation consistent with that method before the examination meeting.
Home office deduction (IRC 280A)
The home office deduction requires that the space be used regularly and exclusively for business. The IRS scrutinizes this deduction closely. Documentation should include: a floor plan or diagram showing the dedicated space, measurements supporting the square footage calculation, photographs of the space, and records showing the space is used only for business purposes. The "exclusive use" requirement is strict: a home office that is also used for personal activities does not qualify, and the IRS may disallow the entire deduction if the exclusivity requirement is not met.
Business vehicle (IRC 274 and IRC 179)
Vehicle deductions require contemporaneous mileage logs showing the date, destination, business purpose, and miles for each business trip. A mileage log reconstructed from memory at examination is far less persuasive than one created contemporaneously. For larger vehicle deductions (Section 179 or depreciation), documentation of the vehicle's cost basis, placed-in-service date, and percentage of business use is required. The IRS may request GPS records, appointment calendars, and client records to verify claimed business trips.
Meals and entertainment (post-TCJA rules)
Post-2017 Tax Cuts and Jobs Act rules generally limit meal deductions to 50% of the qualifying cost and eliminated the deduction for most entertainment expenses. Documentation for meal deductions should include: the amount, the date, the location, the business purpose, and the business relationship of the persons at the meal. Receipts should be retained for all meal expenses over $75 (verify current threshold at IRS.gov). Entertainment expenses that were deducted before the TCJA change may require historical records; be prepared to distinguish meals from entertainment if years before 2018 are under examination.
The Revenue Agent Report and 30-Day Letter: Reviewing Adjustments and Deciding the Response
At the close of the examination, the agent prepares a Revenue Agent Report (RAR) summarizing the proposed adjustments for each issue examined, the legal authority for each adjustment, and the resulting tax, interest, and penalty amounts. The RAR is transmitted to the taxpayer with a 30-day letter (Letter 525 or Letter 531), which gives the taxpayer 30 days to respond.
What the 30-day letter says and what it means
The 30-day letter provides three options: (1) agree to all adjustments by signing Form 870 and paying the resulting liability; (2) disagree and request a conference with the IRS Independent Office of Appeals; or (3) do nothing, which allows the IRS to issue a Notice of Deficiency (90-day letter) after which Tax Court is the primary remedy. The 30-day response deadline is important but it is not the taxpayer's final opportunity. If the taxpayer misses the 30-day deadline, the IRS will issue a Notice of Deficiency, and the taxpayer retains the right to petition Tax Court after receiving that notice. However, missing the 30-day window eliminates the pre-assessment Appeals conference option (though not all Appeals access), and Tax Court becomes the primary path to contest the adjustment.
Reviewing each RAR adjustment
Review every proposed adjustment against: the documentation in the file, the legal authority the agent cited, and the examination plan. Identify adjustments that are factually wrong (the documentation supports the deduction and the agent disallowed it without adequate basis), legally wrong (the agent misapplied the relevant IRC provision or Treasury Regulation), or disproportionate (the adjustment amount exceeds what the facts support). Identify adjustments that are correct (the deduction was not adequately substantiated). The decision to contest or concede each adjustment should be made issue by issue, not return by return.
When the examination result is incorrect or the examination was not conducted properly, the path forward is through IRS Appeals. The IRS Appeals practitioner protest guide covers the protest letter requirements, small case request procedure, and conference strategy for challenging examination adjustments at the Appeals level.
If an examination closes incorrectly and the taxpayer did not pursue Appeals before the assessment became final, audit reconsideration may be available. The IRS audit reconsideration practitioner guide covers the criteria for reconsideration, the documentation required, and the procedural path for reopening a closed examination.
Penalty Abatement at Examination: Reasonable Cause, First-Time Abatement, and Section 6751(b)
Penalties proposed in the RAR are not automatically final. The examination stage is an appropriate time to challenge penalties, and raising penalty abatement before the RAR is finalized is preferable to raising it at Appeals or after assessment. The two primary administrative grounds for abatement are reasonable cause and first-time abatement (FTA).
Reasonable cause abatement
Reasonable cause applies when the taxpayer exercised ordinary care and prudence but still failed to comply. Common reasonable cause grounds for accuracy-related penalties include: reliance on incorrect information from the IRS, reliance on a professional advisor's advice (when the reliance was reasonable and the advisor was given accurate information), unusual circumstances that prevented compliance, and serious illness or other incapacitating events. The taxpayer must show both the existence of the reasonable cause and that the failure was not due to willful neglect. The IRS evaluates reasonable cause based on all the facts and circumstances. A well-documented reasonable cause submission addresses each factor the IRM requires for evaluation.
First-Time Abatement (FTA)
First-Time Abatement is an administrative waiver available for the first instance of an IRS penalty when the taxpayer has a clean compliance history for the three prior years. FTA is available for failure-to-file, failure-to-pay, and failure-to-deposit penalties. It is not available for accuracy-related penalties under IRC 6662 or fraud penalties. FTA does not require a showing of reasonable cause; compliance history is the only criterion. Practitioners should check the client's penalty history before the examination closes: if the client qualifies for FTA on any proposed penalty, that argument should be raised before the RAR is finalized, not after.
Section 6751(b) supervisory approval
Under Section 6751(b) of the Internal Revenue Code, certain penalties must receive written supervisory approval before they are formally asserted. Confirm current Section 6751(b) scope against the applicable case law at the time of examination; the Graev v. Commissioner line of cases has shaped the current rules regarding when supervisory approval is required and what constitutes adequate approval. If a penalty in the RAR appears to have been asserted without the required supervisory approval at the appropriate procedural point, that procedural issue should be raised in the 30-day letter response or at Appeals. The full guide to IRS penalty abatement covers the full range of abatement grounds including FTA, reasonable cause, and penalty challenges for specific penalty types.
Closing Agreements and Form 870: What Signing Means and When Not to Sign
At the conclusion of an examination, if the taxpayer agrees to all or some of the proposed adjustments, the IRS will request that the taxpayer sign Form 870 (Waiver of Restrictions on Assessment and Collection). Understanding what Form 870 does and does not waive is critical before the taxpayer signs anything.
What Form 870 waives
Signing Form 870 waives the taxpayer's right to receive a Notice of Deficiency before the IRS assesses the agreed tax. It does not waive the right to file a claim for refund later. However, a signed Form 870 is treated as an agreement to the specific adjustments covered by the signed form, and reopening those adjustments after signing is procedurally more difficult. Do not sign Form 870 on adjustments that are still under dispute, as a partial signing may complicate the appeal of the disputed adjustments.
Form 870-AD vs. Form 870
Form 870-AD is used when the case is settled at Appeals rather than at the examination level. Unlike Form 870, Form 870-AD includes a mutual concession language that may limit the IRS's ability to reopen the case for the same year on the same issues. The distinction matters: a case settled at Appeals with Form 870-AD carries stronger finality protections than one closed at the examination level with Form 870.
NEVER SIGN UNDER TIME PRESSURE WITHOUT REVIEWING THE ADJUSTMENTS
Revenue Agents sometimes present Form 870 at the conclusion of an examination meeting and create informal pressure to sign immediately. Practitioners should not sign anything on the spot without reviewing the adjustments against the file. Request time to review the RAR carefully. The IRS cannot compel the taxpayer to sign Form 870; the 30-day letter is the proper vehicle for the taxpayer's decision about whether to agree, disagree, or pursue Appeals.
Field Examination Red Flags: Audit Triggers for the Small-Business ERO Client Base
The IRS uses statistical models to identify returns for examination, and those models are not publicly disclosed. But practitioner experience, IRS audit technique guides (ATGs), and published IRS enforcement priorities reveal the categories of issues that most frequently attract Revenue Agent attention in the small-business returns that make up the ERO client base.
Large Schedule C losses, especially recurring losses
A Schedule C that shows a loss in multiple consecutive years raises the question of whether the activity is a trade or business (for which losses are deductible) or a hobby (for which losses are not deductible under IRC 183). The IRS hobby loss rules apply when the activity does not show a profit in at least three of five consecutive years (two of seven for horse breeding). Returns showing recurring losses alongside substantial W-2 income are statistically more likely to attract examination attention. For the nine-factor profit motive test, the IRC 183(d) profit presumption, and the examination defense framework, see the IRC 183 Hobby Loss Practitioner Guide.
Cash-intensive businesses with high expense ratios
Businesses that receive most of their income in cash (restaurants, salons, auto repair, retail) are subject to heightened IRS scrutiny because unreported income is more difficult to detect through document-matching programs. A high expense-to-gross-receipts ratio in a cash-intensive business is a common examination trigger, as is a lifestyle that appears inconsistent with the reported income level.
S corporation distributions with no or minimal W-2 wages
S corporation shareholders who receive all or most of their compensation as distributions rather than wages attract IRS scrutiny for the reasonable compensation issue. The IRS's position is that shareholder-employees must receive reasonable compensation (wages subject to FICA) for services they perform for the corporation. A return showing substantial S-corp distributions alongside minimal or no shareholder wages is a recognized examination trigger.
Large charitable contribution deductions
Large noncash charitable contribution deductions, particularly those claiming deductions for vehicles, artwork, real estate, or other assets, are a common examination focus. The substantiation requirements for noncash contributions are strict (qualified appraisal for contributions over $5,000; contemporary written acknowledgment for all contributions of $250 or more). Appraisals that appear to overvalue contributed property are an IRS enforcement priority.
Rental real estate with large losses
Rental real estate losses are generally passive and can only be deducted against other passive income, with limited exceptions for active participation (up to $25,000 for taxpayers with AGI below $100,000, phasing out by $150,000) and real estate professional status. Returns claiming large rental real estate losses against ordinary income receive heightened scrutiny, as does the real estate professional election (which requires 750 hours of real estate services and more than 50% of working time in real property trades or businesses).
Many field examinations begin as correspondence examinations that were upgraded because of an IDR response that expanded the IRS's scope or raised additional questions. The correspondence exam IDR response and upgrade prevention guide covers how to structure an IDR response to address exactly what was asked without volunteering scope-expanding information, and the factors associated with upgrade risk from correspondence to field examination.
IMPORTANT: THIS GUIDE IS INFORMATIONAL, NOT LEGAL ADVICE
This guide is informational and does not constitute legal advice. IRM references and procedural details should be verified at IRS.gov before relying on them in any specific matter. Examinations involving potential fraud, large-dollar adjustments, or criminal referral risk warrant experienced legal representation. Complex examination matters should not be managed without consulting a practitioner experienced in IRS examination representation.
Regulated Claims and Verification Requirements
The following items in this guide are subject to IRS policy, IRM updates, or case law development and must be verified before relying on them in any specific matter: (1) DIF statistical selection criteria: the IRS does not disclose the DIF formula or specific selection thresholds; this guide states only that statistical models are used, which is public IRS information. (2) Section 6751(b) supervisory approval: the scope of the requirement has been shaped by the Graev v. Commissioner line of cases; confirm current requirements against applicable case law at the time of examination. (3) IDR timeline requirements: verify current requirements in IRM 4.46.4 at IRS.gov. (4) First-Time Abatement eligibility criteria: verify current FTA administrative procedures at IRS.gov. (5) Statute of limitations rules: the three-year and six-year periods stated are the standard rules; verify any unusual circumstances that might affect the applicable period with qualified counsel.
Related Guides in the IRS Examination and Controversy Cluster
The field and office examination is one part of the broader IRS examination and controversy workflow. These guides cover the adjacent steps in the practitioner representation lifecycle:
- IRS Correspondence Examination Practitioner Guide: the upstream examination type, handled by mail, that precedes the office and field examination stages
- Form 2848 Power of Attorney Guide: the first step in examination representation, covering CAF registration, e-file submission, and authorization scope
- IRS Appeals Practitioner Protest Guide: the downstream step after receiving a 30-day letter, covering formal protest requirements and Appeals conference procedure
- IRS Penalty Abatement Guide: first-time abatement, reasonable cause, and other administrative abatement grounds for penalties assessed at or after examination
- IRS Audit Reconsideration Guide: the procedure for reopening a closed examination when the original assessment was incorrect and the taxpayer did not pursue Appeals
- IRC 7521: Taxpayer Rights During IRS Interviews: representation rights, interview suspension, and recording procedures under IRC 7521 for field and office examination clients
- IRC 7602: IRS Summons Power -- Powell Test, Quash Procedures, and Third-Party Rights: the formal summons that follows when field-exam IDRs go unanswered, the Powell enforcement test, and third-party summons notice and quash rights
Frequently Asked Questions
What is the difference between an IRS office examination and a field examination?
An office examination is conducted at an IRS office and is typically handled by a Tax Compliance Officer (TCO). The scope is narrower and the issues examined are generally specific line items rather than the full return. A field examination is conducted at the taxpayer's place of business (or the representative's office) and is handled by a Revenue Agent. Field examinations typically cover a broader range of issues and involve more complex returns, often those of self-employed individuals, partnerships, S corporations, or C corporations. The initial contact letter signals which type was initiated: Letter 2205-A requests scheduling of an office appointment; Letter 2205-B notifies the taxpayer of an assigned Revenue Agent for a field examination.
What is an IDR and how should a practitioner respond to one?
An Information Document Request (IDR, Form 4564) is the IRS's formal written request for documents, records, or explanations during an examination. Practitioners should respond narrowly: provide exactly what is requested and nothing beyond it. Documents that were not requested should not be volunteered, as they may surface issues outside the original examination scope. If the IDR is overly broad or the deadline is unreasonable, contact the agent to negotiate scope or timeline before the deadline. All IDR responses should be documented: retain a copy of everything submitted, note the submission date, and confirm receipt with the agent in writing. Verify current IDR timeline requirements in IRM 4.46.4 at IRS.gov.
What options does a practitioner have after receiving the Revenue Agent Report?
The Revenue Agent Report (RAR) is transmitted with a 30-day letter that provides three options: agree to the adjustments (sign Form 870), disagree and request an Appeals conference, or take no action (which results in a Notice of Deficiency after which Tax Court is the primary remedy). Practitioners should review every proposed adjustment against the file documentation and the legal authority cited. Not every adjustment needs to be contested; evaluating which to challenge and which to concede in exchange for settlement of others is a core representation decision. Missing the 30-day deadline eliminates the pre-assessment Appeals conference but does not eliminate all contest options: the taxpayer retains Tax Court rights after receiving the Notice of Deficiency.
Can penalties proposed in an examination be abated before they are assessed?
Yes. Penalties proposed in the RAR can be challenged at the examination stage through reasonable cause (the taxpayer exercised ordinary care and prudence but still failed to comply) or First-Time Abatement (clean compliance history for the three prior years). Raising penalty abatement before the RAR is finalized is preferable to raising it at Appeals. Under Section 6751(b), certain penalties must receive written supervisory approval before they are formally asserted; confirm current Section 6751(b) scope against applicable case law at the time of examination, as the Graev v. Commissioner line of cases has shaped the current rules.
What does signing Form 870 at the close of an examination mean?
Signing Form 870 waives the taxpayer's right to receive a Notice of Deficiency before the IRS assesses the agreed adjustments. It does not waive the right to file a refund claim later. Form 870 should not be signed on the spot at the examination closing meeting without reviewing the final adjustments against the file. The IRS cannot compel the taxpayer to sign; the 30-day letter is the proper vehicle for the taxpayer's decision about whether to agree, disagree, or pursue Appeals. Do not sign Form 870 on disputed adjustments, as partial signing may complicate the appeal of the adjustments that remain contested.