I got an IRS or state tax notice about my business — what do I need to pull out of my books to respond?

What does the notice tell you before you open the books?

Read the whole notice and every enclosure before running a report. The IRS's audits-by-mail video script says the letter explains the issues involved and outlines the types of information you need to send, and the IRS's Audits Records Request page says your notice will instruct you on how and when to present your records. Record these parameters on one sheet, because every later choice follows from them:

• Authority and notice number. The IRS's page on understanding notices says the CP or LTR number is on the right corner of the letter; for a state notice, note the agency and the reference number it prints.
• Tax, form and period. IRS Publication 3498-A refers to the tax form and period shown on your letter, and that period bounds every report you run.
• Issue or figure. Copy the line, account or third-party amount in question in the notice's own words.
• Items requested. List each request or question separately, keeping the notice's numbering.
• Reply date. Calendar the date printed on the notice the day it arrives.
• Channel. Note the upload route, fax number or address the notice gives; the IRS's CP2000 page, for example, says to send a mailed reply to the address on the top left corner of the notice's first page.

Confirm the notice is genuine before sending anything. The IRS's page on understanding notices says that if the letter doesn't appear in its notice search or looks suspicious, call 800-829-1040; IRS Publication 3498-A lists 1-800-829-4933 for business filers. The IRS's Document Upload Tool page says any link in a notice should include "https" and "irs.gov". Run the IRS notice search at an address you type yourself; where your notice's page lists reply fax numbers, as the CP2000 page does by location, check the notice's number against it and call if they differ. Once confirmed, where your notice's own instructions differ from general guidance, the notice governs.

Which kind of request is it?

A notice can ask four different things of the books, alone or in combination:

The IRS's CP2000 page says that if a response form is included you complete and sign it, state whether you agree or disagree, and include any supporting documentation. Agreeing or disagreeing is a tax decision: the books supply the evidence, and the owner or an authorized representative decides. When one notice mixes kinds, treat each item on its own row, and never answer a request for records with an argument in their place.

What should you pull from the books for that period?

Freeze the evidence first. Before anyone edits, re-categorizes or re-closes the period, export the reports below as they stand and save them dated and read-only. Then pull three layers for each issue, scoped to the notice's period:

• Account totals. Run a profit and loss report for exactly the period on the notice and a trial balance as of the period's end date, and mark the accounts at issue.
• Transaction detail. For each account at issue, export the listing behind the total with date, customer or payee, amount, reference and bank account.
• Source documents. For each questioned transaction, copy the invoice, receipt, bill, contract, canceled check, or bank or processor statement that evidences it.

The IRS's Audits Records Request page asks you to organize records by year and type of income or expense and include a summary of transactions, and it lists receipts, bills and canceled checks among the records it may request. The same page says no record can stand on its own and that you must include the circumstances surrounding any document you send, so add a note to each document saying what it was for and how it relates to the business, present receipts by date, and group each canceled check with the bill it paid. Where the notice asks for support for income, the IRS's Internal Revenue Manual chapter on examining income, in its section on individual business returns, directs examiners to analyze bank and financial accounts to evaluate the accuracy of gross receipts, so the IRS may ask for the statements. Include the business account statements behind the deposits you show, and other accounts' statements only if the notice asks. The IRS's video script on organizing files for correspondence exams says to make sure documents are for the tax year requested.

Leave out what the notice did not ask for: other periods, unrelated accounts and the whole accounting data file. A full-file dump answers none of the notice's items and leaves you unable to show which request each page meets.

How do you reconcile the books, the return and the notice's figure?

The IRS's Internal Revenue Manual chapter on examining income tells examiners, in its section on individual business returns, to reconcile the income reported on the return to the taxpayer's books and records, and to ask how income was computed and duplicate the taxpayer's steps. Build that bridge yourself and put it in the package. Start from the figure the notice relies on, give each class of difference its own line and its own support, arrive at the books' figure as it stood when the return was prepared, then show any adjustments made in preparing the return and arrive at the filed figure. Never net classes: a refund total and a cash-sales total that happen to offset still take separate lines.

When the third-party figure is a Form 1099-K, the IRS's instructions for that form define its gross amount without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, shipping amounts or any other amounts, so each of those that the books treat differently is its own class. Receipts that never passed through the reporting payer, such as cash and check sales, and transactions the payer dates in one year but the books record in another, are further classes. The processor-specific steps are covered in the related question on a 1099-K above recorded sales.

In this invented example, the notice relies on a 2025 Form 1099-K gross amount of 84,600.00 and the return reported gross receipts of 81,650.00:

A separate schedule shows changes made after filing. Here, a 1,250.00 receipt was moved from sales to other income in 2026, so the books now show 80,400.00 of sales; that difference comes from the later edit, not from the notice's issue.

If either unexplained line is not zero once every class is identified, stop: a gap on the first means the books do not account for the figure the notice relies on, and on the second that they do not support the filed figure. Either way, bring in a representative before sending any explanation, and ask for more time if the date is close. If the books cannot produce the figure at all, follow the missing-records steps below.

What if the books changed after the return was filed?

Establish what the books showed at filing from the reports given to the preparer, the preparer's workpapers or a backup dated before filing. Reconcile every later change on its own schedule, with date, accounts, amount and reason, and keep it out of the notice's bridge. Keep this schedule with the preserved exports, and send it only if the books you produce show the later figures. If a later change alters a figure on the filed return, bring in a representative before anything is sent. Do not edit the period to agree with the return or the notice; that destroys the record the reconciliation depends on. If you have no copy of the filed return, the IRS's page on Form 4506 says the form is used to request a copy of your tax return. A general mismatch between books and return, outside a notice, is a separate question.

How should the package be put together and sent?

The IRS's video script on organizing files for correspondence exams says to send all requested documents at one time, keep documents for each issue together, number every page and create a summary sheet listing all the documents and the page numbers where they are found. The same script says to add your name, Social Security number, the tax year being audited, your telephone number and the IRS letter number to the summary sheet. If you fax, IRS Publication 3498-A says to put your name and social security number on each page, to ensure all pages are associated with your case. The IRS's audits-by-mail video script says to always include the reply coversheet with the documents you send. Build the summary sheet as a checklist keyed to the notice; this invented one answers an audit-by-mail letter for tax year 2025 asking for support for gross receipts and contract labor:

Mark each reconciliation figure and each account total with the tab and page of its support. The IRS's Audits Records Request page says never to mail original records, so send copies.

Use the channel the notice names. The IRS's audits-by-mail video script says the notice will tell you how to share your documents online and, if you fax, to use the number provided in the letter. The IRS's Document Upload Tool page takes scans, photos or digital copies as JPGs, PNGs or PDFs, so convert ledger exports to PDF before uploading. IRS Publication 3498-A says to call the number on the letter when the volume of documentation is too large to fax or mail.

What do you keep once the package has gone?

Keep these together, outside the accounting system:

• The exact package. The IRS's audits-by-mail video script says to keep copies of everything you send, so keep the file or scanned set exactly as sent, never a version regenerated from books that keep changing.
• The source exports. Keep the dated report exports the package was built from.
• Proof of transmission. The IRS's Document Upload Tool page says you get confirmation that the IRS received your documents; save it, or the fax transmission report or mailing receipt showing date and destination.
• Acknowledgement and calls. IRS Publication 3498-A, on audits by mail, says the IRS will send a letter within 30 days acknowledging documents sent by mail or fax; keep it, with a note of every call giving date, person and outcome.
• The notice. The IRS's page on understanding notices says to keep it for your records.

What if the date cannot be met?

The IRS's audits-by-mail video script says to send your documents by the deadline shown in your letter. Treat that date as binding and sequence the work from it:

1. On arrival, record the parameters, confirm the notice is genuine and calendar the date.
2. Export and save the period's reports before anyone edits the period.
3. Request at once anything held by others, such as a former bookkeeper, the processor or the bank.
4. Pull the documents item by item, then build the reconciliation.
5. Index, copy and send through the notice's channel, then file the copy and the proof.

If assembly will not finish in time, ask for more time before the date. The IRS's audits-by-mail video script says you can request an extension by mailing or faxing your request, or by calling the number on the letter. The IRS's CP2000 page says to send an extension request through one of its reply options. For a state notice, ask for more time by the route the notice gives. Record any new date you are given. IRS Publication 3498-A, on audits by mail, says that if you do not reply by the due date, the IRS will disallow the items identified; the IRS's CP2000 page says that if you don't reply or it can't resolve the discrepancy, it may send another notice and a bill.

What if a record is missing or held by someone else?

The IRS's audits-by-mail video script says that if you're not able to verify something, you'll need to explain how you determined the amount you reported. Put a gap statement behind the item covering these points:

• What is missing and why
• Each attempt to obtain it, with the date, the person asked and the reply
• The substitute evidence used, such as bank or processor statements or a vendor's copy of an invoice
• How any reconstructed figure was built, labeled as a reconstruction

When the period predates the current system, or its records sit with a former bookkeeper or provider, ask the holder in writing for the file or its exports and any workpapers, and note the date. When they arrive, record who supplied them, when, in what form and whether they are complete. While access is pending, build what you can from bank and processor statements and the filed return, and ask for more time before the date rather than send an incomplete reconstruction as though it were book output. Rebuilding records lost in bulk is a separate question.

How can a state notice differ from an IRS one?

A state revenue agency sets its own procedures, so read a state notice on its own terms. New York's Tax Department shows how far they can differ from the IRS:

• Channel. New York's page on responding to notices says you can respond online through your Online Services account.
• File formats. The same New York page accepts extensions including xls and xlsx, up to a combined 50mb, and refuses zip files, so a spreadsheet ledger export can go to New York as it is.
• Authorization. New York's power-of-attorney page says it does not accept IRS power of attorney or authorization forms such as Form 2848 or Form 8821, nor forms made for another state's or city's tax department, such as New York City's Form POA-2.

New York's page on responding to notices says that where a notice requires documentation, you check the department's checklists of acceptable proof; where a letter does not, you may respond with an explanation only, typed in a 1,000-character box or uploaded as a file if longer. Key a state notice's production to its own tax, items and period, and never resend a federal package unchanged.

When does a professional take over, and what must be in place first?

The job stops being a records production in any of these situations:

• The reconciliation leaves an unexplained difference.
• The notice proposes a change and someone must agree or disagree.
• The notice raises penalties, asks for an interview or widens to other periods or issues.
• A change made after filing alters a figure on the filed return.
• Answering needs an interpretation of tax law rather than records.

IRS Publication 3498-A says you may represent yourself or, with proper written authorization, have someone else represent you, and that the representative must be a person allowed to practice before the IRS, such as an attorney, certified public accountant or enrolled agent. Put the authorization in place before anyone else corresponds for the business:

• Form 2848. The IRS's instructions for Form 2848 say to use it to authorize an individual to represent you before the IRS, and that line 3 must give the description of the matter, the tax form number where applicable and the years or periods, so copy them from the notice.

  They add that representation covers only the years or periods listed and that the IRS returns any form with a general reference such as "All years", so list every period the matter reaches. For a corporation, an officer with the legal authority to bind it signs and enters their exact title; for a partnership, all partners sign and enter their exact titles unless one partner is authorized to act in its name, in which case only that partner signs and a copy of that authorization must be attached. For a matter under the centralized partnership audit regime, the partnership representative (or designated individual, if applicable) signs.

• Form 8821. The same instructions point to Form 8821 when you want someone, such as your bookkeeper, to inspect or receive confidential tax information without representing you.
• A state form. New York's power-of-attorney page describes a power of attorney as a legal document that allows you to appoint an individual or individuals to represent you before the department, and says Form POA-1 can be completed with its web application; for any other state, use that agency's own instructions.

With a representative engaged, the bookkeeper still pulls and indexes the records, and the representative reviews the package and sends it. Paying anything the notice proposes is a separate decision.