Letter 525: what it means and what to do
Letter 525 is the examination report. An audit of your return has concluded, the examiner has set out the changes they propose, and you have 30 days to respond. It is not a bill and the changes are not final. This letter is also your route to the IRS Office of Appeals, which is a considerably better place to argue than where you are now.
The instinct is to sign it and make it stop. That is occasionally right and frequently expensive, for reasons set out below.
What is Letter 525?
It is commonly called the general 30 day letter. It arrives at the end of an examination, and it comes with attachments that do the actual work.
Form 4549 is the examination report itself, setting out each adjustment, the recalculated tax, and any penalties. Form 886-A explains the examiner’s reasoning item by item. Between them they tell you exactly what was disallowed and why, which is more information than most people realise they have been given.
You may receive a close relative of this letter instead. Letter 915 and Letter 692 serve the same function. If yours says thirty days and includes a Form 4549, this page applies.
This is different from a CP2000. A CP2000 is a computer noticing a mismatch. Letter 525 means a person examined your return, reached conclusions, and wrote them down.
What is the IRS actually saying?
“We looked at your return, here is what we think should change, and here is what that would cost. You have a month to agree, disagree, or give us something we have not seen.”
Read Form 886-A carefully rather than skipping to the number. Adjustments usually fall into one of three categories, and they are not equally defensible.
Substantiation. The examiner disallowed something because you did not produce records. These are the easiest to fix, because producing the records fixes them. People routinely lose adjustments here that they could have won by looking harder in a drawer.
Interpretation. You and the examiner read the same facts and the same rule differently. Whether an expense was ordinary and necessary. Whether an activity was a business or a hobby. Whether a worker was an employee. These are genuinely arguable and they are what Appeals exists for.
Arithmetic or scope. Occasionally something is simply wrong, or an adjustment has knock-on effects the report has not accounted for.
How long do I have?
Thirty days from the date printed on the letter.
If you need more time, ask. Extensions are commonly granted, particularly when you are gathering documents or arranging representation. Ring the number on the letter before the window closes rather than after.
Missing the 30 days does not end your options, but it does change them. See below.
Why Appeals is different from the examiner
This is the part almost nobody is told, and it is the reason Letter 525 is an opportunity rather than simply a bill.
An examiner applies the rules as they understand them. They are not permitted to settle a case on the basis that the IRS might lose if it went to court. If they believe the adjustment is correct, that is where they have to leave it.
The Independent Office of Appeals can weigh the hazards of litigation. Their job is to resolve disputes without going to court, and they are permitted to consider how likely the IRS would be to win. Where an issue is genuinely arguable, that changes the conversation entirely, and cases settle at Appeals that the examination function would never have moved on.
Appeals is also organisationally separate from the examiner who made the adjustment. You are not asking the same person to reconsider.
Requesting an Appeals conference is what the 30 days is for. It costs nothing to ask and it does not commit you to a fight.
What are my options?
Agree. If the examiner is right, sign the agreement form and return it. Interest continues until the balance is paid, so agreeing early costs less than agreeing late. If you cannot pay, still agree and deal with the balance separately.
Understand what signing does. Agreeing to the report generally waives your right to take that issue to the Tax Court. It is a final step, not a holding position, and it should not be taken simply to end the discomfort.
Partially agree. Entirely normal and frequently the right answer. Concede the adjustments that are clearly correct, contest the ones that are not, and say plainly which is which. Narrowing a dispute usually improves the outcome on what remains.
Send additional documentation. Where the disallowance was about substantiation, sometimes the answer is simply the receipts. Send them with a short covering letter referencing the item numbers used in the report.
Request an Appeals conference. How you do that depends on the size of the dispute. For smaller amounts a brief written request identifying the items you disagree with is generally sufficient. Above a threshold, a formal written protest is required and it has specific content requirements, including the facts, the law you are relying on, the periods involved, and a declaration under penalties of perjury.
A protest written badly is worse than no protest, because it frames the argument you are then stuck with. This is the point at which most people should stop doing it themselves.
What happens if I ignore it?
The IRS issues a Statutory Notice of Deficiency, usually Letter 3219. That is the 90 day letter, and it is a different kind of document.
It gives you 90 days to petition the United States Tax Court, and that deadline cannot be extended for any reason at all. Filing a petition preserves your right to dispute the tax before paying it, and cases are frequently settled with Appeals after a petition is filed anyway.
If the 90 days also passes, the tax is assessed and you move into collection. From there you are arguing about how to pay rather than about whether you owe, and the routes back are narrow.
So ignoring Letter 525 does not make the adjustment go away. It moves you from an easy forum to a harder one, twice.
Do I actually need help with this?
More often than with the automated notices, because this one followed an actual examination.
You can handle it yourself if you have read Form 886-A, you agree the examiner is right, and the amount is one you can pay or arrange a plan for. Sign it and move on. The same is true if the only issue is substantiation and you have now found the documents.
It is worth having someone when the disagreement is about interpretation rather than paperwork, when a formal protest is required, when penalties have been proposed, when the adjustment affects more than one year, when a business or self-employment is involved, when the examiner has raised questions about unreported income, or when you are not confident you understand what was actually decided.
And there is one situation where you should stop and take advice before responding at all: if the examination has moved toward questions about income you did not report, rather than deductions you claimed. That changes the character of the matter, and what you say in the next letter matters.
Do not sign it yet
Tell me the letter date, the tax year, and roughly what was adjusted. I will tell you whether the examiner’s position looks solid, whether Appeals is worth pursuing, and whether you need anyone at all. If the honest answer is that you should sign and pay, that is what you will hear.
Where it needs proper work, I file an authorisation, pull your transcripts and the examination file, and send you a written memo on what was adjusted, how defensible each item is, and what the options cost. That phase is $999 and it stands on its own.
If the 30 days is close, say so at the top of your message and I will move it up the queue.
Please do not attach the letter or include your Social Security number in a first message. A date and a sentence is enough, and we move to a secure portal once we are talking.
Other notices: CP2000 · CP14 · CP504 · LT11 and Letter 1058 · CP71C · all IRS notices and audits
Michael Jones, EA & CFP®. Enrolled Agent, licensed by the U.S. Department of the Treasury to represent taxpayers before the IRS in all fifty states. This page is general information about how examination reports work, not advice about your particular letter. Thresholds, forms and procedures change, so check the letter itself and confirm current requirements before filing anything.