IRS Audit Explanation Letter

What an Explanation Letter Accomplishes

An audit explanation letter provides context and factual clarification for items the IRS is questioning on your tax return. It explains discrepancies, describes circumstances surrounding transactions, and connects supporting documentation to specific return items.

The explanation letter is your opportunity to present your case clearly before the IRS makes a determination. It should be factual, organized, and address each item under examination.

What to Explain in Your Letter

Effective explanation letters address:

• Why amounts on your return differ from third-party reports
• The nature and purpose of claimed deductions or expenses
• How you calculated amounts if estimates were used
• Why documentation may be incomplete and what alternative evidence you can provide
• Circumstances that explain unusual transactions or reporting
• Corrections to errors on your return with supporting calculations

What NOT to Include in Your Explanation

• Do not make excuses or blame others for errors
• Do not include lengthy personal stories unrelated to the audit
• Do not express anger or frustration with the IRS
• Do not make statements you cannot support with documentation
• Do not argue about tax law or policy
• Do not provide contradictory explanations for the same item

How to Structure Your Explanation

Organize your explanation letter as follows:

• Opening: Reference the notice number, tax year, and items under examination
• Body: Address each questioned item separately with clear subheadings
• For each item: State the amount claimed, explain the nature of the item, reference supporting documents, and provide factual context
• Closing: Summarize key points and request reconsideration based on the information provided
• Attachments: List all supporting documents included with the letter

Related Resources