IRS notice guide

IRS Letter 566: the correspondence audit letter, explained

Written by CompDefend. Founded by Umair Nazir, EA — Enrolled Agent, federally licensed to practice before the IRS. Last updated 2026-08-23.

The IRS Letter 566 series is used in correspondence examinations — audits conducted by mail. A standard initial-contact letter names the return and tax year under review, lists the items the IRS is questioning, and asks for supporting records by the printed date. Some variants combine that request with an examination report and appeal rights, so the exact letter suffix and enclosures matter. Selection for examination is not itself a finding that anything is wrong.

Letter 566 in brief

A standard Letter 566 is an initial contact and information request for a correspondence (mail) audit. The IRS audits page says “We won't initiate an audit by telephone.”
The printed response date and enclosed instructions control. A standard request has no universal day count, while combined variants such as Letter 566-B or 566-D may include an examination report and a 30- or 45-day response or appeal period.
If you do not reply by that date, the IRS says it “will disallow the items identified” and send an examination report proposing tax changes.
Send copies, never originals, organized item by item, with your name and taxpayer identification number on every page if you fax.
You may answer it yourself or authorize a CPA, enrolled agent or attorney with Form 2848. Form 8821 only lets someone read your tax information.

Letter 566 series (correspondence examination letters) at a glance

What it is: A standard Letter 566 is an initial contact and information request for a correspondence examination. Some variants, including 566-B and 566-D, can combine initial contact with an examination report and appeal instructions.
Why it was sent: The return was selected by random selection and computer screening against statistical norms, or through a related examination of another taxpayer's return. Selection is not a finding of error.
Who receives it: Individuals and businesses whose return was selected for a mail audit — an owner's Form 1040 (Schedule C or S-corporation K-1 items), a corporation's Form 1120-S, or an employment tax return such as Form 941.
Tax type involved: The tax and period named in the letter. It can involve income-tax items or an employment-tax item on Form 941 or 940, such as a payroll credit.
Deadline: The printed date and enclosed instructions control. A standard information request has no universal day count; a combined examination-report variant may state a 30- or 45-day response or appeal period. Do not assume an extension applies to an appeal deadline.
If it is ignored: The IRS “will disallow the items identified” and send an examination report proposing tax changes; interest continues to accrue. If that report also goes unanswered, a Statutory Notice of Deficiency follows with 90 days to petition the Tax Court, after which the tax is assessed.

What Letter 566 is

A standard Letter 566 is the IRS's initial contact and information request for an examination handled by correspondence. The Taxpayer Advocate Service describes an initial contact letter as notification that a return has been selected for an audit. The letter names the return and year under review, the items being questioned — a deduction, a credit, reported income, a payroll item — and the documents the IRS wants to see. A separate Form 4564 information document request is used in other examination settings.

The letter comes in a family of variants — 566-B, 566-D, 566-E, 566-S, 566-T and others. IRS materials describe Letter 566-S as generally used for an audit of a specific item and 566-E for wages, withholding and refundable credits. Taxpayer Advocate Service materials identify 566-B and 566-D as variants that can combine initial contact with an examination report and a 30- or 45-day letter. Read the suffix, every enclosure, and the appeal instructions; do not assume every Letter 566 is at the same procedural stage.

Why your return was selected

The IRS audits page lists two routes into examination: “random selection and computer screening,” where a return is picked at random or scored by a statistical formula against norms for similar returns, and “related examinations,” where your return involves “issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.” Selection is not an accusation. For a business owner the return named may be your own Form 1040 (a Schedule C, or K-1 items from your S corporation), the corporation's Form 1120-S, or an employment tax return such as Form 941 — and which one it is decides whose records you need.

How serious it is

A correspondence audit is conducted by mail, and at this stage the outcome is open: Publication 3498-A says the IRS may “accept your original tax return as filed” or may “propose an adjustment to your return,” depending on what it receives. Send a complete, organized response tied to each requested item. The examiner evaluates the records you provide, so identify any unavailable document and explain what other substantiation supports the item.

The deadline: the letter sets it

For a standard information request, the Taxpayer Advocate Service says to provide documentation by the due date shown in the letter, and Publication 3498-A says to reply by the deadline given in the letter. There is no universal day count for that request. A combined 566-B or 566-D can already include an examination report and a stated 30- or 45-day response or appeal period. In every case, the printed date and the instructions enclosed with your exact variant control.

What to gather

Build the response around the questioned items, not around your whole year. For each item the IRS wants a chain: the return line, the number behind it, and the source documents that prove the number. Publication 3498-A says that if you cannot verify an amount, you should “provide an explanation of the issue and how the amount was determined.” A written explanation beats silence, because silence is disallowance.

Response package for a Letter 566

A copy of the letter on top, plus any enclosed questionnaire, completed.
The return and schedules for the year under review, with the questioned lines marked.
A one-page cover letter mapping each questioned item to a labeled exhibit.
For deductions: invoices or receipts, proof of payment (cancelled checks, bank or card statements), and evidence of business purpose.
For vehicle, travel or meals: the log kept at the time — dates, places, purpose, amounts.
For income questions: bank deposit records, the sales ledger, and any Forms 1099 or 1099-K received.
For Form 941 or 940 items: payroll registers, deposit records, and the eligibility workpapers behind any credit claimed.
For S-corporation items: the general ledger, shareholder basis schedule, and the reasonable compensation support if officer pay is questioned.
Copies only, with your name and taxpayer identification number on every faxed page. Publication 3498-A: “Please do not send original documents.”

What happens next

How a mail examination proceeds

You respond by the date in the letter.Mail or fax the package to the address or number the letter gives. Keep a full copy and your proof of delivery.
The IRS reviews what you sent.“The IRS will review your documentation. If more information is needed, the IRS will contact you.” Some audits “can be closed quickly. Other types can take several months.”
Outcome one: accepted as filed.“If we accept your documentation, we will send you a letter stating we accept your return as filed.” Keep that letter with your tax records.
Outcome two: an examination report.If the IRS does not accept your documentation, it sends “a letter explaining any proposed changes to your tax return” with an examination report and an agreement form. Publication 556 calls this the 30-day letter: it notifies you “of your right to appeal the proposed changes within 30 days.” If you agree, sign and return the form by its date; paying the proposed amount stops interest, and Publication 3498-A describes a “deposit” and an “advance payment” as two ways to do that. If you disagree, you can request a telephone conference with the examiner, then the examiner's manager, then an Appeals conference — each before the date in that letter. Penalty relief for reasonable cause must be requested in writing.
If no agreement: a Statutory Notice of Deficiency.Publication 3498-A: “You have 90 days from the date on the notice to petition the U.S. Tax Court without paying the tax,” and the IRS “cannot extend the time you have to petition the U.S. Tax Court beyond the original 90 days.” If you neither agree nor petition, “the tax will be assessed.” Procedures are at the U.S. Tax Court.

What the law requires, what the IRS expects, what keeps you defensible

A 566 response goes better when you keep three things apart: the legal duty, the evidence standard the IRS applies in practice, and the habits that make the first two easy — prudent practice, not law.

The three layers behind a Letter 566 response
Layer	What it means for a 566
Legal requirement	Keep records sufficient to establish your income and deductions, and answer the request. Publication 3498-A grounds it in Internal Revenue Code sections 6001, 6011 and 6012(a): “Your response is mandatory under these sections.”
IRS substantiation expectation	Each questioned item supported by source documents — invoice, proof of payment, business purpose — not a spreadsheet total. Where an estimate is unavoidable, a written explanation of how it was made.
Defensibility control	Records organized so each questioned return line can be traced readily to its evidence; explanations written when facts are fresh; the business's IRS account checked between filings. These are prudent controls, not separate legal requirements.

What the questioned item says about your process

From the business's side, each questioned item is also a control check. A contested deduction may expose a receipt-capture problem. A contested income figure may expose unreconciled bank deposits or a Form 1099-K that was not matched to the books. A contested payroll credit may expose missing eligibility workpapers. Answer the year under review, then correct any process weakness the response uncovers.

Expense substantiation. The control is a capture rule: every business expense attached to its source document when paid, with business and personal accounts kept separate.
Income reconciliation. The control is a monthly reconciliation of bank deposits, merchant statements and the sales ledger, with differences explained in writing.
Payroll and employment tax. If a Form 941 or 940 item is questioned, compare your deposit records and filings before the IRS does. An employment tax examination can also reopen worker classification.
Owner compensation. For S corporations, an examination that touches distributions or officer pay is when a documented reasonable compensation analysis earns its keep. See where S-corp owners are challenged.
Account awareness. Examination activity can appear on the IRS account for the form and period involved. A business tax transcript may therefore provide a separate account signal, but it does not reproduce the letter, its questioned items, or its deadline.

That last point is where CompDefend Radar fits, and where its limits sit. Radar reads the business's federal account weekly under a Form 8821 authorization for three modules — the 1120-S, 941 and 940 — and can surface examination-opened and examination-assessment activity on them. Form 1040 is outside Radar's scope, so a 566 letter about an owner's personal return is outside its view. And a transcript code never contains the letter: Radar can show that an examination indicator appeared on the 941 account, not which items were questioned or what the due date is. The letter controls; the account tells you to go find the letter. How account monitoring works explains what the weekly read can and cannot see.

When to involve a CPA, enrolled agent or attorney

You may answer a Letter 566 yourself. Consider a professional when the questioned items turn on judgment rather than receipts — reasonable compensation, worker classification, credit eligibility; when the amount at stake is large for the business; when records are missing and you will be reconstructing; when an employment tax return is involved, where penalties and the trust fund rules raise the stakes; when a date has already been missed; or when an examination report and appeal instructions are already enclosed. A professional can also help scope the response to what was requested.

Representation requires the right form. Form 2848, Power of Attorney and Declaration of Representative, lets a person eligible to practice before the IRS — an attorney, a CPA or an enrolled agent — speak and act for you. Publication 3498-A notes that at Appeals “an unenrolled preparer may be a witness during the conference, but not a representative.” Form 8821 is different: it authorizes someone “to inspect and/or receive your confidential information” and nothing more. CompDefend operates under Form 8821, which is why it can read your account and cannot represent you.

What to gather now

The letter itself and any enclosed questionnaire.
The filed return and schedules for the year named, with the questioned lines marked.
Source documents for each questioned item: invoices or receipts, proof of payment, and evidence of business purpose.
For income items: bank deposit records, the sales ledger, and Forms 1099 or 1099-K received.
For payroll items: payroll registers, deposit records, and credit eligibility workpapers.
For S-corporation items: the general ledger, basis schedule, and any reasonable compensation support.

What to do now

Identify the exact letter suffix, calendar every printed date, and check whether an examination report or appeal instructions are enclosed.
Confirm the letter is genuine; the IRS starts audits by mail, never by phone.
Write a one-page cover letter that maps each questioned item to a labeled exhibit, and explain in writing any amount you cannot fully document.
Send copies, not originals, with your name and taxpayer identification number on every faxed page, and keep proof of delivery plus a full copy of the package.
Decide whether to authorize a representative with Form 2848 before the first deadline, not after.

Involve a CPA, enrolled agent or attorney when the questioned items turn on judgment (reasonable compensation, worker classification, credit eligibility), when the amount is large for the business, when records are missing and you will be reconstructing, when an employment tax return is involved, or when a date has already been missed. Representation before the IRS requires Form 2848; Form 8821 does not permit it.

Where CompDefend fits — and where it does not

What CompDefend does

Explains the correspondence examination process and the procedural difference between a standard information request and a combined examination-report variant.
Measures the business's wider defensibility — records, payroll, contractor reporting, owner compensation — through the free assessment, so the weakness a 566 exposed is not the only one you learn about by mail.
Monitors the 1120-S, 941 and 940 account modules weekly under a Form 8821 authorization through CompDefend Radar, where examination-opened activity is among the supported signals.
Builds a documented reasonable compensation study when an S corporation's officer pay is the item in question.

What CompDefend does not do

Read, answer or track your Letter 566 — the letter is paper the IRS mails to you, not account data.
Represent you before the IRS or prepare your response. Form 8821 permits reading tax information only; representation requires Form 2848 and a practitioner.
An owner's Form 1040 is outside Radar's scope, so an examination of the personal return is outside its view.
Predict whether any return will be examined, or promise any examination outcome.

See where your business stands

A Letter 566 tests one year and a few items. The free assessment measures whether the rest of your business — records, payroll, contractor reporting, owner pay — would hold up the same way, and returns a Federal Tax Defensibility Index with the weak areas named.

Check My Business Tax Defensibility See how CompDefend Radar works