IRS Letter 525 Examination Report Guide
Understanding Letter 525
Letter 525 is a 30-day letter the IRS sends when an audit results in proposed changes to your tax return. This notice documents the examiner’s proposed adjustments to your reported income, deductions, or credits and explains the reasoning behind each change.
The letter gives you 30 days from the date of the letter to respond by agreeing with the changes, providing additional information, or requesting an Appeals conference. Letter 525 represents the examiner’s proposed position, not a final determination. The examination remains open during this response period while you decide your next steps.
Who Should Use This Guide
This guide applies if you received Letter 525 after an IRS examination, need to understand proposed tax adjustments, must decide whether to agree or appeal the examiner’s findings, or want to know your response options and deadlines.
This guide does not apply if you received an initial audit selection notice, already completed an
Appeals conference, received a Notice of Deficiency (90-day letter), or are facing collection
actions such as levies or liens.
Critical Response Factors
Your response timing determines what options remain available to you. Missing the 30-day response period does not make adjustments final, but it closes your opportunity to request an administrative Appeals conference at this stage.
The IRS then issues a Notice of Deficiency, which provides 90 days to petition the Tax Court before assessment occurs.
The IRS evaluates first
- Whether you accept proposed adjustments within 30 days
- Whether you request an appeals review before the deadline
- Your compliance with response procedures and requirements
What delays resolution
- Failing to respond within 30 days without requesting an extension
- Submitting incomplete documentation or unclear position statements
- Waiting for billing notices instead of addressing proposed changes
What preserves your options
- Responding before the deadline with clear documentation
- Requesting an extension if you need additional time
- Understanding the difference between agreement and appeal procedures
Response Action Steps
1. Read Letter 525 completely and identify the examination year and proposed adjustments.
Note the letter date and calculate your 30-day response deadline.
2. Review the examination results section showing each proposed change.
The letter lists dollar amounts and explains the examiner’s reasoning for each adjustment.
3. Verify the response deadline stated in your letter.
The deadline is typically 30 days from the date of the letter. Mark this date immediately.
4. Gather all examination documentation, including receipts, statements, and prior correspondence.
Organize these materials if you plan to appeal or provide additional information.
5. Determine your position on the proposed adjustments.
Consider whether you agree with all, some, or none of the examiner’s findings.
6. Prepare your written response if you disagree with any adjustments.
State which adjustments you dispute and provide specific facts and documentation supporting your position.
7. Follow the correct appeal procedure based on the adjustment amount.
If the total amount for any tax period exceeds $25,000, you must file a formal written protest. If the amount is $25,000 or less, you may file a formal protest or submit a small case request using Form 12203.
8. Send your response by certified mail to the address specified in Letter 525.
Keep copies of everything you send and retain proof of mailing.
9. Sign and return Form 870 if you agree with all proposed adjustments.
Form 870 waives your right to appeal and allows the IRS to assess the tax. Do not sign this form if you disagree with any findings.
10. Request an extension in writing if you need additional time.
Contact the IRS before the deadline expires to request additional time to prepare your response.
11. Document all response activities, including mailing dates and contents.
This documentation protects you if questions arise about whether the IRS received your response.
Actions That Harm Your Position
- Missing the 30-day deadline without requesting an extension closes your opportunity for
administrative Appeals at this stage. The IRS will issue a Notice of Deficiency, which will move you to the next procedural stage. You can still petition the Tax Court within 90 days of receiving the notice, but you will lose the immediate Appeals option.
- Signing Form 870 without understanding the adjustments locks in the examiner’s
findings. This form constitutes acceptance of all proposed changes and waives your right to appeal. Review all adjustments carefully before signing any agreement.
- Submitting an appeal without documentation or factual support rarely succeeds. The
examiner has already reviewed the available information and concluded. Your response must provide new facts or overlooked evidence.
- Ensure that your response is sent to the correct address and includes delivery
confirmation to avoid missing your deadline. The IRS date-stamps responses when received. Missing responses mean missed deadlines.
- Ignoring Letter 525 and waiting for billing notices eliminates your easiest path of appeal.
Administrative Appeals review is available now. After receiving the Notice of Deficiency, your options are to either proceed to Tax Court or to make a payment followed by a refund claim procedure.
Consequences of Non-Response
If you do not respond to Letter 525 by the stated deadline, the IRS issues a statutory Notice of
Deficiency under Internal Revenue Code Section 6212. This notice gives you 90 days to file a petition with the U.S. Tax Court if you wish to dispute the proposed adjustments before assessment.
If you are outside the United States, you have 150 days to complete the process. If you do not petition the Tax Court within this period, the IRS assesses the tax automatically at the end of the
90-day window. After assessment, the IRS sends you a bill for the amount owed. If you do not pay, the IRS may begin collection activities, including notices, liens, and levies.
When Professional Assistance Matters
Consider professional help when adjustments involve complex business deductions, depreciation schedules, or professional income requiring technical tax law interpretation.
Substantial dollar amounts that significantly affect your financial situation warrant expert guidance.
When you disagree with the examiner during the audit and believe the findings remain incorrect, representation helps present your position effectively. Multiple tax years under examination require coordinated responses across periods. Missing documentation that cannot be easily reconstructed often needs professional strategies for presenting alternative evidence.
Common Questions About Letter 525
Does Letter 525 require immediate payment?
No, Letter 525 proposes adjustments and begins a response period. If you agree, the IRS assesses the tax and sends a separate billing notice. If you appeal, no payment is due until the appeal resolves.
What happens if I miss the 30-day deadline?
The IRS issues a Notice of Deficiency, giving you 90 days to petition the Tax Court. Missing the
Letter 525 deadline does not eliminate all appeal opportunities. You may request Appeals consideration even after filing a Tax Court petition.
Can I make a payment while deciding whether to appeal?
Yes, payment or deposit stops interest from accruing while you consider your options. Payment alone does not waive the right to appeal. Signing Form 870 waives your right to appeal.
Can I agree with some adjustments and appeal others?
Yes, state in your written response which adjustments you accept and which you dispute. You may request partial agreement, finalizing some items while appealing others.
How long does the Appeals process take?
The timeline varies depending on the case complexity and the workload of the appeals office.
The IRS handles Appeals cases individually without publishing standard timeframes.
Your Position After Receiving Letter 525
Letter 525 begins a decision period in the audit process that requires you to evaluate the examiner’s proposed changes and respond appropriately to the Internal Revenue Service. The
30-day window allows administrative appeal options before the process advances to statutory notice procedures, which is common in correspondence audits and other audit types involving information matching.
Understanding your deadline, carefully reviewing proposed adjustments that affect your tax liability, and responding before it expires ensures that all options remain available. Whether you agree with or disagree with the findings, a timely response protects your rights in tax disputes and helps prevent escalation to collection actions such as bank levies or a federal tax lien.
Consulting a tax professional during this stage can help ensure your response is accurate and complete.
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