10/21/2026
Most Schedule C owners don’t think about an audit until the letter shows up in the mail. By then the IRS has already run the numbers, looked at the bank deposits, and decided which years they want to open.
I’ve sat across from revenue agents on these exams for years. The ones that spiral usually start the same way. The taxpayer gets the letter, panics a little, then starts answering questions and sending documents without knowing what the agent is actually allowed to ask for or how the Service reconstructs income when the records aren’t clean. Once that happens, it’s hard to pull the exam back.
The rules haven’t changed much, but the way the IRS selects and works these cases has. They’re still using the Discriminant Income Function and Total Positive Income to pick returns. Losses get treated as zero. The National Research Program continues to measure Schedule C compliance, and those cases have specific contact rules. If the letter doesn’t match what the IRM says should go out, that matters. Most people never check.
I’ve watched proposed adjustments drop significantly once the deposits were properly analyzed, the IDRs were managed, and the agent was kept inside the rules that actually apply. I’ve also watched cases expand because the taxpayer tried to handle the first few weeks alone and answered questions the agent wasn’t entitled to ask yet.
If you’ve already received a letter, or you’re looking at prior years and wondering how the numbers would hold up, the next thirty to sixty days usually determine how the exam goes. The checklist I use with clients covers the first steps most people skip.
Give us a call 1-866-907-1845 if you’re already in the process and need someone who does this regularly to look at where the case stands.
