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A simplified 3D white figure stands against a clean background, holding a large magnifying glass with a red handle. The magnifying glass is positioned over bold red letters spelling “AUDIT,” enlarging part of the word. The scene emphasizes scrutiny, examination, and careful review, visually representing the audit process and the importance of close attention to financial records and compliance details.

Proven Ways to Prepare for an IRS Audit

An IRS audit can be unsettling for any nonprofit, but understanding the process and responding promptly will reduce disruption. First, confirm the notice. The IRS notifies organizations by letter or by phone followed by a letter; it does not initiate audits by email. Treat any unsolicited audit-related email as likely fraudulent and contact your advisor.

Start Smart: Confirm the Audit Notice Is Legitimate

An audit is simply a review of financial information to verify that reported tax-related data complies with tax law. It is not a criminal procedure. Audits can result from inconsistencies, random selection, or statistical screening, and outcomes vary — many audits conclude with no change.

A close-up view of a person reviewing printed financial documents with charts and tables, using a blue highlighter to mark specific figures. The desk contains organized folders, a clipboard labeled “audit,” and sheets with graphs and numerical data. Preparing for an IRS audit.

There are three common types of audits to expect: correspondence audits (conducted through the mail), office audits (at an IRS office), and field audits (at your organization’s premises). Correspondence audits are the least intrusive and are often resolved by submitting records electronically or by mail. Field audits require more extensive access to books and records.

Record access is central to every audit. For nonprofits, focus on donor acknowledgments, receipts for charitable contributions, grant agreements and allocations, program expense documentation, payroll and benefit records, and the schedules supporting your Form 990. The IRS increasingly accepts electronic records, so well-organized digital files can speed the process. Maintain audit trails for restricted funds and unrelated business income, if applicable.

Timeliness and cooperation matter. There is no fixed audit duration, but having organized records and responding quickly typically shortens the review. If the IRS proposes additional tax or penalties, you have appeal rights — many issues can be resolved administratively without litigation.

You do not need to handle an audit alone. Engage your accountant or legal counsel as soon as you receive notice. A qualified advisor will help assemble records, communicate with the IRS, and guide you through appeals if necessary — protecting your organization’s mission and reputation.

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We welcome the opportunity to put our tax expertise to work for you. To learn more about how our firm can help advance your success, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.