What to Do If You Receive an IRS Notice or Letter

Receiving an official notice or letter from the Internal Revenue Service (IRS) can be a source of immediate anxiety for many taxpayers. However, it's important to remember that not all IRS correspondence indicates a problem or an audit. Many notices are routine and simply provide information, request clarification, or inform you of a change to your account. The key is to understand what the letter is about and respond appropriately and promptly.   

Ignoring an IRS notice is never advisable, as it can lead to further complications, penalties, and interest.

Why You Might Receive an IRS Notice or Letter

The IRS sends millions of notices each year for various reasons. Common reasons you might receive a letter include:

• Changes to Your Tax Return: The IRS may have adjusted your tax return due to a discrepancy in reported income, deductions, or credits. This often happens if the income reported by your employer or financial institution (on forms like W-2s or 1099s) doesn't match what you reported on your return.

• Balance Due: The notice might inform you that you owe additional tax, penalties, or interest. This could be due to an underpayment of estimated taxes, an error on your return, or a change made by the IRS.   

• Request for More Information: The IRS may need additional documentation or clarification to process your return, verify a deduction or credit you claimed, or confirm your identity.

• Refund Information: You might receive a notice about your refund status, if your refund is less than expected, or if there's a delay in processing it.   

• Identity Verification: In cases of suspected identity theft, the IRS may send a letter requesting you to verify your identity before processing your return or issuing a refund.

• Missing Information: The IRS may have received a tax form (like a W-2 or 1099) that indicates income you received, but it wasn't reported on your tax return.

• Changes to Your Account: This could include confirmation of an address change you requested or information about a payment plan.

Key Steps When You Receive an IRS Notice

When an IRS letter arrives, follow these crucial steps:

1. Don't Panic: Take a deep breath. Most issues can be resolved.

2. Read the Entire Notice Carefully: Don't just skim it. Read every page to understand the specific issue, the tax year it pertains to, and the requested action.

3. Check the Notice Number and Date: Every IRS notice has a unique notice number (usually in the upper right or left corner, like CP2000 or LTR 0123C). This number helps identify the type of notice. Note the date of the notice and any response deadlines.

4. Understand the Reason: The notice should clearly state why it was sent. Does it propose a change to your tax, request information, or inform you of a balance due?

5. Gather Your Records: Collect all relevant tax records for the year in question, including your original tax return, W-2s, 1099s, receipts, and any other supporting documentation related to the issue mentioned in the notice.

6. Don't Ignore It: Even if you believe the notice is incorrect, do not ignore it. Ignoring IRS correspondence can lead to additional penalties, interest, and even more serious collection actions.

7. Keep a Copy: Always keep a copy of the notice and any correspondence you send to the IRS for your records.

Responding to an IRS Notice

Your response will depend on the nature of the notice and whether you agree with its contents:

• If You Agree with the Notice:

  • If a balance is due, follow the payment instructions provided in the notice. You can often pay online, by phone, or by mail.   

  • If the notice indicates a change to your return that you agree with, no further action may be needed beyond paying any new balance due.

• If You Disagree with the Notice:

  • Gather Supporting Documentation: Collect all documents that support your position. This might include cancelled checks, bank statements, legal documents, or detailed records of income and expenses.

  • Write a Clear Response: Draft a concise letter explaining why you disagree. Reference the notice number, the tax year, and clearly state the facts and provide copies of your supporting documents. Do not send original documents.

  • Mail Your Response: Send your response by certified mail, return receipt requested. This provides proof that you sent the letter and that the IRS received it.

• If You Need More Time or Cannot Pay:

  • Contact the IRS: If you cannot pay the full amount due, contact the IRS as soon as possible to discuss payment options, such as an installment agreement or an offer in compromise.   

  • Request an Extension: If you need more time to gather information or respond, you may be able to request an extension, though this typically applies to information requests, not payment deadlines.

Why Professional Guidance is Invaluable

Dealing with IRS notices can be intimidating, and the tax code is complex. Misinterpreting a notice or responding incorrectly can have significant financial consequences.

A qualified tax professional can:

• Interpret the Notice: Help you understand exactly what the IRS is asking for and why.

• Review Your Records: Examine your tax return and supporting documents to determine the best course of action.

• Draft a Response: Prepare a clear, concise, and effective written response to the IRS on your behalf.

• Represent You: Communicate directly with the IRS, potentially saving you time and stress.

• Negotiate Solutions: If you owe money, they can help you explore payment options or penalty abatement.

• Minimize Liability: Ensure that your response is accurate and compliant, helping to mitigate potential penalties or further issues.

The information provided here is for general educational purposes only and should not be considered personalized tax advice. Tax laws are complex and individual situations vary widely. For guidance on your specific IRS notice or letter, it is highly recommended to consult with a qualified tax professional.