How you respond to Letter 525, and whether you respond at all, shapes every option available to you from this point forward.
IRS Letter 525 is the formal written notice the IRS sends at the conclusion of an audit examination. It outlines the examiner’s findings and proposed changes to your return. You may also see it called the IRS exam report or the 30-day letter IRS, since it gives you 30 days to respond.
The letter typically includes:
Letter 525 is not a final assessment. It arrives before a formal Notice of Deficiency is issued, which means you still have leverage to challenge the findings. Our page on IRS audits and examination procedures covers each stage in detail.
Letter 525 means your audit concluded, and the examiner disagrees with one or more items on your return. Common issues include unreported income, disallowed business deductions, disputed credits, or insufficient documentation.
This is a defined administrative process. It does not imply fraud or criminal conduct. Many audits involve legitimate disagreements over documentation or tax law interpretation.
Our Guide to IRS Audits explains the full process from start to finish.
The attached IRS exam report lists each proposed adjustment line by line: increases to reported income, disallowed deductions or credits, and revised tax calculations. These are proposed changes. They are not final unless you agree to them or fail to respond.
The report also shows additional tax owed, any penalties, and accrued interest. Interest continues to accrue regardless of whether you agree or appeal. Waiting does not stop the clock.
Before responding, compare each proposed adjustment against your own records. The IRS may have lacked complete documentation, or the examiner may have misread the facts. Our attorneys review examination reports, identify errors, and represent taxpayers directly before the IRS.
If you agree with all adjustments, sign the enclosed agreement form (typically Form 4549) and return it to the IRS. This closes the audit and allows you to arrange payment. It also waives your right to appeal those specific findings. If you cannot pay in full, payment arrangements may still be available, but the underlying assessment becomes final.
If you disagree with any proposed change, you have the right to request a review by the IRS Independent Office of Appeals within the 30-day window. The IRS outlines these rights in its overview of taxpayer appeal rights.
An appeal is a structured administrative process with defined procedures and a neutral reviewer. Cases are frequently reduced or resolved during Appeals when additional documentation or legal arguments are presented. You may also agree with some adjustments and appeal others, a selective approach that is both common and effective. Our attorneys can walk you through the IRS audit appeals process from protest letter to hearing.
In some circumstances, you may request additional time to gather records or consult a professional. Extensions are not automatic and must be formally requested. Not responding is not an extension request and will not preserve your appeal rights.
If you do not respond within 30 days, the IRS will typically issue a Notice of Deficiency, a formal legal notice that gives you 90 days to petition the U.S. Tax Court. If you miss that window, the IRS assesses the tax and begins collection.
Responding at the Letter 525 stage preserves your administrative appeal rights and typically allows disputes to resolve more efficiently. Once the deadline passes, those options close.
No. Letter 525 outlines proposed changes. A Notice of Deficiency formally asserts the tax and triggers your right to petition the U.S. Tax Court. Letter 525 comes earlier in the process and gives you more room to respond.
Yes. The appeal process allows you to accept some findings and challenge others. Your attorney can help you determine which adjustments are worth contesting.
Appeals timelines vary and can extend significantly depending on IRS workload and case complexity.
You may respond on your own. A tax attorney can identify weaknesses in the examination report, organize documentation, and negotiate directly with Appeals, particularly when significant dollars or complex issues are involved.
Payment and dispute are separate issues. You can challenge the assessment’s accuracy while also exploring payment options. Agreeing to an incorrect finding to end the matter quickly can create long-term financial consequences.
The 30-day window is the last point in the process where your administrative options are fully intact.
Our tax attorneys represent individuals and business owners in IRS audits and appeals throughout Michigan and nationwide for federal matters. We review IRS exam reports, identify errors in the examiner’s findings, and advocate directly with the IRS Office of Appeals to reduce or eliminate the proposed assessment before it becomes final.
Call (248) 262-3400 for a confidential case review.
This content is for informational purposes only and does not constitute legal or tax advice. The outcome of any matter depends on the specific facts and circumstances involved. Past results do not guarantee future outcomes.
