When the IRS completes an examination of a tax return, it often communicates its findings through formal correspondence. One of the most common notices issued at this stage is IRS Letter 525, also known as the “30-Day Letter.” This letter is not a final tax bill but rather a proposal of adjustments the IRS believes are necessary after reviewing a taxpayer’s return. For individuals and businesses, understanding this notice—and responding appropriately within the limited timeframe—is critical to preserving rights and avoiding unnecessary liabilities.
What is Letter 525?
Letter 525 is a written notification that the IRS has concluded an audit or review and has identified proposed changes to the taxpayer’s reported income, deductions, or credits. It typically arrives accompanied by Form 4549, Report of Income Tax Examination Changes, which itemizes the adjustments, recalculates tax liability, and shows interest or penalties, if any.
The letter provides the taxpayer with an opportunity to agree or disagree with the IRS’s findings. Importantly, it grants a 30-day window to respond. During this time, the taxpayer may either accept the proposed changes or file an appeal challenging the adjustments.
How to Respond
Upon receiving Letter 525, the taxpayer has three options:
1. Agreement with Adjustments: If the taxpayer concurs with the IRS’s findings, they sign the enclosed form (often Form 4549 or Form 870) and return it. This confirms acceptance of the revised liability, after which the IRS will assess the tax and issue payment instructions.
2. Disagreement and Appeal: If the taxpayer disputes the proposed changes, Letter 525 outlines the procedures for appeal. A protest must be filed within the 30-day period. Depending on the dollar amount in controversy, the taxpayer may submit a small case request or a formal written protest to the IRS Office of Appeals. This independent body reviews the case and can settle disputes without resorting to litigation.
3. No Response: Ignoring the letter is the least advisable option. Failure to respond within 30 days results in the IRS issuing a Notice of Deficiency (90-Day Letter). At that point, the taxpayer’s only recourse is to petition the United States Tax Court within 90 days, a process that can be costly and time-consuming.
Consequences of Inaction
Failure to act within the prescribed timeframe not only forfeits the right to administrative appeal but can also lead to immediate tax assessments, additional penalties, and interest accrual. In practice, disregarding Letter 525 escalates matters into more formal—and potentially more burdensome—tax disputes.
Relevance for Taxpayers
Letter 525 carries significant weight because it represents the transition from an IRS examination to formal assessment. For taxpayers, its arrival signals several key considerations:
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- Time is of the essence. The 30-day deadline is strict. Missing it closes off the administrative appeal path.
- Documentation matters. Any disagreement must be supported by records, receipts, or legal arguments that substantiate the taxpayer’s position.
- Strategic choices. Deciding whether to accept, appeal, or litigate requires careful evaluation of the IRS’s rationale, the strength of the taxpayer’s case, and potential costs.
We Can Help!
IRS Letter 525 is not a casual notice—it is a pivotal moment in the audit process. Ignoring the letter or missing deadlines can escalate the matter and severely limit available remedies.
Letter 525 requires prompt, informed action. Whether through acceptance, negotiation, or appeal, at JH Tax Law, we can help you address it in a timely and strategic manner to protect your rights and minimize potential liabilities.
If you’ve received Letter 525, contact our office for a confidential consultation today.