IRS Letter 566 Explained | What It Means and What Happens Next

When a letter arrives from the IRS asking you to verify information on your tax return, it can leave you unsure whether this is routine paperwork or something that needs urgent attention.

IRS Letter 566 sits somewhere in the middle of that spectrum. It is not a notice of immediate collection action, but it is a formal request that opens a process with real deadlines attached. Understanding what triggered it and how the examination process unfolds can help you approach the situation with a clear head.

What IRS Letter 566 Is

Letter 566 is an audit correspondence letter. The IRS sends it to notify a taxpayer that their return has been selected for examination and to request documentation supporting specific items on that return. Unlike a field audit, where an IRS agent visits in person, Letter 566 is part of what is commonly called a correspondence audit. Everything is handled through the mail or, in some cases, through an online portal.

The letter will identify the tax year under review, list the specific line items the IRS wants to examine, and explain what kinds of records would support each item. Common targets include deductions like charitable contributions, business expenses, or education credits, though the IRS can also question income figures, filing status, or claimed dependents.

Why You Received This Letter

Selection for a correspondence audit does not necessarily mean the IRS believes something is wrong. Returns are flagged through a combination of automated screening tools, statistical scoring, and document matching. If the income reported on your return does not align with what employers, banks, or other payers reported to the IRS separately, that mismatch can trigger a closer look. Deductions that are statistically unusual relative to income level can also prompt a review.

In some cases, a return is simply pulled as part of a random compliance study. Receiving Letter 566 does not automatically mean you owe more tax.

What the Letter Is Asking You to Do

Letter 566 will include a response deadline, typically 30 days from the date printed on the letter, though the IRS often builds in some flexibility for correspondence audits. The letter will ask you to review each questioned item and respond in one of a few ways: submit documentation to support the item as reported, provide an explanation if exact records are not available, or agree to a proposed adjustment if you believe the IRS is correct.

The documentation the IRS typically looks for varies by item. For charitable deductions, that might be written acknowledgment letters from qualifying organizations. For business expenses, it might be receipts, bank statements, or mileage logs. For a dependent claim, it could be school records or medical documents showing the person lived with you.

Sending organized, clearly labeled copies rather than original documents is generally the standard practice. The IRS will not return original documents sent by mail, so holding onto the originals is worth keeping in mind.

What Happens If the Letter Is Ignored

If no response is received by the deadline, the IRS will typically proceed based on the information it already has. That usually means issuing a Notice of Deficiency, sometimes called a stat notice, which proposes an increase to your tax liability. At that point, the taxpayer has 90 days to petition the U.S. Tax Court if they disagree. If that window passes without action, the proposed assessment becomes final and the IRS can begin collecting the additional amount.

The correspondence audit stage is generally the most straightforward point in the process to respond. Waiting until a formal deficiency notice arrives reduces the options available and compresses the timeline considerably.

How Letter 566 Fits Into the Broader Audit Process

A correspondence audit triggered by Letter 566 is considered one of the lower-intensity forms of IRS examination. The IRS handles a large volume of these every year, and many are resolved without any change to the original return once adequate documentation is provided.

If the IRS reviews what you send and agrees with your return, you will receive a closing letter indicating no change. If the IRS partially agrees, they may adjust only the disputed items and issue a revised proposed liability. If the documentation does not fully support the claimed items, the examiner may propose an assessment for the portion that cannot be verified.

Taxpayers have appeal rights throughout this process. The IRS Office of Appeals is an independent function within the agency, and requesting an appeal is a formal but relatively accessible option if you disagree with the examiner’s conclusions after the initial correspondence phase.

Common Questions at This Stage

One question people often have is whether they can get more time to respond. In practice, the IRS frequently grants extension requests for correspondence audits, particularly if you contact the examiner listed on the letter before the deadline passes and explain why more time is needed.

Another common question involves what to do if records no longer exist. Missing documentation does not automatically mean the deduction will be disallowed. The IRS has provisions, sometimes referred to under the Cohan rule framework, that allow taxpayers to provide reasonable estimates supported by other evidence when records have been lost or destroyed. How well this works depends heavily on the specific item and what corroborating information exists.

People also ask whether they need professional help for a correspondence audit. Many taxpayers handle straightforward Letter 566 situations on their own, particularly when the questioned items are limited and records are readily available. When the audit involves a significant dollar amount, complex business expenses, or incomplete records, working with a tax professional is something people in that position often consider.

Keeping Track of Your Response

Whatever you send in response to Letter 566, sending it via certified mail with return receipt creates a record that the IRS received the documents. Keeping a complete copy of everything you submit, along with notes on any phone calls including the date, time, and name of the representative you spoke with, tends to be useful if questions arise later about what was submitted and when.

The examination process can move slowly, and waiting several weeks or longer for a response after submitting documentation is not unusual. If the deadline listed on the letter has already passed or is approaching quickly, reaching out to the contact listed directly on Letter 566 is generally the most productive first step.

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