IRS Letter 566: your return is under a mail audit

What is IRS Letter 566?

IRS Letter 566 is an initial contact letter that opens a correspondence examination, meaning an audit done entirely by mail. It names the tax year, lists each item on the return the IRS questions (or income it believes was left off), and asks for documents that support those items.

A correspondence examination letter like this is not a bill and not a finding of wrongdoing. Publication 3498-A, The Examination Process (Audits by Mail), explains that the IRS may accept the return as filed once it sees your records. Mail audits are the most common format; the correspondence audit guide covers the full process, and the IRS audit guide compares all three formats.

Letter 566-B, 566-S, 566-E and other versions

The suffix after the number tells you which kind of mail audit you are in. The IRS uses several versions of the initial contact letter, and the version determines whether a proposed report is already enclosed.

Letter 566 B IRS versions deserve extra care. They enclose Form 4549, Report of Income Tax Examination Changes, showing the tax the IRS will propose if you send nothing. That report is not final. It is the starting position, and your documents are how you change it.

If you received a version labeled IRS Letter 566-T or another suffix not in the table, the reply steps below are the same: read the item list, check the due date and look for a Form 4549 in the envelope.

How long do I have to respond to Letter 566?

You must respond by the date printed on the letter. Letters that include a report are issued as 30-day or 45-day letters under the IRS campus exam procedures (IRM 4.19.13), and letters without a report use a similar window, so count from the letter date, not the day it arrived.

For mail audits the IRS allows one automatic 30-day extension if you ask by fax or mail, according to its audits page. Publication 3498-A also invites you to call the number on the letter before the deadline to discuss more time. Get the extension on record before the original due date.

How to respond to a Letter 566 audit

Answer each questioned item separately, with copies of records and a short explanation, sent the way the letter instructs. A tidy, complete first response is the single biggest factor in closing a mail audit quickly.

1. Copy the list of questioned items from the letter onto a cover sheet, numbered in the same order.
2. Under each item, write one or two sentences explaining the amount and how you arrived at it.
3. Attach photocopies of the supporting records behind each item, labeled with the item number.
4. Write your name, taxpayer ID and tax year on every page, which Publication 3498-A asks for on faxed pages.
5. If you cannot document an amount, explain how it was figured instead of leaving it blank.
6. Include the response form or copy of the letter so the reply matches your case.
7. Send by fax, mail or the upload method your letter lists, and keep proof of sending.

Example: a Letter 566-S questions $3,600 of childcare expenses used for a credit and a $2,900 Schedule C supply expense. The reply has two tabs. Tab 1 holds the provider's statement and payment records totaling $3,600. Tab 2 holds supply invoices and card statements totaling $2,900 with a line explaining why the supplies were business-only.

If your records are too bulky to fax or mail, call the number on the letter. Publication 3498-A says the examiner may accept an itemized list, and the IRS audits page notes you can ask for a face-to-face audit when records are extensive.

What happens after Letter 566?

After you respond, the IRS sends a letter within 30 days acknowledging documents received by mail or fax, then an examiner reviews them. If more information is needed, you get another request.

• Records accepted: you receive a no-change letter. Keep it with that year's return.
• Changes proposed: you receive a report and a 30-day letter such as Letter 525 with options to agree, talk to a manager or go to Appeals.
• No reply at all: the IRS disallows the questioned items, then issues a statutory notice of deficiency with 90 days to petition the Tax Court before the tax is assessed.

If an assessment is already made because you missed the letter, you are not out of options. The audit reconsideration process lets you submit the records later while the tax is unpaid.