Every year, the IRS mails millions of letters and notices to taxpayers for a wide variety of reasons. In this article, we’ll explore some of the reasons IRS mails these letters or notices and give you some tips on what to do, and not do, if you receive one from the IRS.
Each letter or notice will have an identifying code, like CP2000 or CP14 on the top right-hand portion of the letter. This code is your first clue as to what the correspondence is all about and the most appropriate way to respond. The IRS website at Understanding Your IRS Notice or Letter | Internal Revenue Service allows you to enter the code and get some additional information about what the notice means.
Reasons you may get a notice include (but are not limited to):
- You have a balance due
- You are due a larger or smaller refund
- IRS has a question about your tax return
- IRS needs to verify your identity
- IRS needs additional information
- IRS changed your return
- IRS needs to notify you of delays in processing your return
Here are some tips and suggestions on what not to do and what you should do when you receive IRS correspondence.
Don’t ignore the letter or notice. Many issues are relatively straight-forward to address, especially if you respond early. IRS will never go away and will likely send a series of increasingly threatening letters if you do not respond. Ultimately, the IRS has the power to seize or levy your assets to pay outstanding tax bills.
Don’t panic. Of course, seeing that letter in the mail can be heart-stopping. However, IRS letters provide the information you need to resolve the issue, and as mentioned above, do not always require sophisticated responses.
Don’t dispute all amounts. Sometimes the IRS is right, and you really did leave that income off your tax return. In that case, just pay the tax and be done. Fighting with the IRS can be costly in terms of increased penalties and interest over time, or if you feel you need to involve your tax professional. That said, R&A has many strategies to decrease or waive penalties, so ask us if we can do that for you.
Do read the letter carefully and respond right away (in general, right away means within 30 days). If you want us to help you with the notice, try to get it to us within a week of receiving it.
Do avoid scams. IRS never initiates contact with taxpayers through social media or text messages and almost never calls taxpayers. If you get a phone call from someone claiming to be from the IRS, err on the side of caution and don’t provide any personal information. Give R&A a call if you worry about the legitimacy of a contact from the IRS.
Do respond as instructed. Most correspondence can be handled without calling or visiting an IRS office if you follow the instructions in your letter or notice. However, if you do have questions, call the telephone number that is usually found in the upper right-hand corner of your notice. Have a copy of your tax return and the correspondence available when you call so IRS can readily access your account. If you bring us a copy of your notice or letter, we can call the IRS or prepare a written response for you. It is one of the things we are really good at, and it can save you a lot of grief in the long run. We tend to see many different types of notices and have a big toolbox of ways to respond to each one.
Here are five types of notices we tend to see a lot:
CP2000 - The income or payment information IRS has on file doesn't match the information you reported on your tax return. This discrepancy may cause an increase or decrease in your tax or may not change it at all. These notices are generally a request for an explanation of what or how you reported something on your tax return and are best dealt with early on.
CP14 - IRS sends this notice because you have unpaid taxes related to one of your tax returns. CP14 is usually the first letter you will receive if the IRS thinks you owe them money.
CP501 - You have a balance due (money you owe the IRS) on one of your tax accounts. If you get this notice, it means the IRS has likely sent previous letters you have not responded to.
CP504 - You have an unpaid amount due on your account. If you do not pay the amount due immediately, the IRS may seize (levy) your property or rights to property and apply it to the employer responsibility payment you owe.
Intent to levy – IRS issues a variety of these notices, the code depending on your tax situation. It is very important to respond to these notices immediately, so you don’t run out of time to exercise your right to dispute IRS findings.
It is always upsetting to receive an IRS notice, but they are easier to deal with if you are armed with some knowledge of the process. Of course, come see R&A or give us a call if you would like help understanding or responding to an IRS notice.
About this Author
Susan is experienced in tax research, not-for-profit taxation, trusts and estates, and sales tax. She has prepared tax returns for pubic charities, private foundations, and charitable trusts as well as unrelated business income tax returns for numerous charities.