The Internal Revenue Service (IRS) estimates that $235 billion of the $450 billion in taxes that should have been reported and paid on time but were not is caused by individuals underreporting their income tax liabilities.
An audit is one of the primary enforcement tools the IRS uses to address the noncompliance that contributes to the Tax Gap, and the cornerstone of the IRS audit efforts is the correspondence audit program.
In Fiscal Years 2008 through 2012, IRS statistics show it conducted almost 5.7 million correspondence audits and recommended approximately $40.4 billion in additional taxes.
In Fiscal Years 2008 through 2012, IRS statistics show that it conducted almost 5.7 million correspondence audits and, in the process, recommended approximately $40.4 billion in additional taxes.
This represents about 77 percent of all audits the IRS conducted of individual income tax returns and about 56 percent of the estimated $72.4 billion in recommended additional taxes resulting from those audits.
The responsibility for conducting correspondence audits rests largely with the IRS’s Small Business/Self‑Employed (SB/SE) Division, which handles complex individual tax returns, and its Wage and Investment Division, which handles simple tax returns filed by individuals reporting wages, interest, dividends, and other investment income.
In contrast to the more detailed and lengthy face-to-face audit at an IRS office or in the field at a taxpayer’s place of business, the correspondence audit process is less intrusive, more automated, and conducted by examiners who are trained to deal with less complex tax issues.
Because of its automated features and less complex tax issues, the correspondence audit process enables the IRS to reach more taxpayers at a lower cost.
The IRS currently conducts correspondence audits in approximately 37 program areas.
Regardless of the program, the audit process typically begins with the IRS mailing a computer‑generated letter from one of its campuses to a taxpayer.
The letter outlines the examination process, identifies;

• one or more items on the tax return being questioned, and
• requests supporting information to resolve the questionable items.

 
Once the requested information is returned, examiners review it to determine whether it resolves the questions.
If the questions can be sufficiently answered by the information provided, the audit is generally closed without any changes to the tax; if not, the taxpayer is sent a letter requesting more information or indicating a recommended change to the tax.
The taxpayer at this point can do one of the following:
· Agree with the examiner.
· Provide the examiner with clarifying information.
· Appeal the decision to the IRS’s Office of Appeals.
In instances where the taxpayer does not respond to IRS letters, the examiner’s recommended tax changes are assessed by default and the taxpayer will generally have to petition the court system to contest the assessment.
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 IRS Mail Audits Facts – Representation by Former IRS – Audited by the IRS