The LTR 525 is the IRS's preliminary determination after an audit. It tells you what changes the examiner is proposing to your return and gives you 30 days to respond. This letter is often called the "30-day letter" because of that deadline, and it represents one of the most important decision points in the audit process.
What you do in the next 30 days determines whether your case goes to the IRS Office of Appeals, where the best deals are made, or whether it escalates to a statutory notice of deficiency, where your only option is Tax Court.
What the LTR 525 Contains
The letter comes with a detailed examination report showing the changes the auditor is proposing. Each adjustment is listed with the auditor's explanation and the resulting tax impact. The report shows the additional tax, any penalties, and interest.
Review every proposed change carefully. Compare each one to your records. Auditors are thorough, but they're human. They miss things. They misunderstand things. They sometimes propose adjustments that are technically incorrect or that don't account for documentation you provided.
Your Three Options
You can agree with all proposed changes by signing the consent form and returning it. The IRS assesses the additional tax and you move to the payment phase. This is the right move when the auditor got it right and fighting would just add professional fees to an inevitable outcome.
You can partially agree by accepting some adjustments and protesting others. This is common. Maybe the auditor correctly disallowed $5,000 in unsupported deductions but incorrectly adjusted $10,000 in legitimate expenses. Accept what's correct. Fight what's wrong.
You can disagree entirely and file a written protest requesting a conference with the IRS Office of Appeals. This is the option most people should seriously consider, especially when the proposed changes are significant.
Why Appeals Matters
The IRS Office of Appeals is independent from the examination function. Appeals Officers have settlement authority that auditors don't have. They can consider the "hazards of litigation," meaning they can weigh the chances the IRS would win or lose in court and settle accordingly.
In practice, this means Appeals can approve deals that auditors can't. An auditor might insist on a full disallowance. Appeals might settle for 50% because they know a Tax Court judge could go either way. That flexibility makes Appeals the single best opportunity to resolve a disputed audit.
How to Write a Protest
A formal written protest is required when the proposed increase in tax (including penalties) is more than $25,000. For smaller amounts, a small case request (a brief letter) is sufficient.
The formal protest must include your name, address, and contact information; a statement that you want to appeal; the tax years involved; a list of each adjustment you disagree with; the facts supporting your position; and the law or authority you're relying on. You must sign it under penalties of perjury.
A well-drafted protest is a legal document. It frames the issues, presents the facts favorably, and cites the law that supports your position. The quality of the protest directly affects the quality of the outcome at Appeals.
Don't Miss This Window
If you don't respond within 30 days, the IRS moves to the statutory notice of deficiency (LTR 3219). At that point, Appeals is off the table and your only option is Tax Court. The cost and complexity jump significantly.
If you've received an LTR 525, call us at (813) 229-7100. We draft audit protests regularly and we know what Appeals Officers respond to.