AARGH — I Received an IRS Notice!
Now that April 15th has come and gone and most folks have filed their tax returns, we now enter another season – what I call IRS Notice Season. It seems to me over my years of tax practice that often there is an onslaught of notices from the IRS (or the State Department of Revenue) that quickly follows the traditional tax season.
I suspect this year could be worse than most, given the problems the IRS had early on retooling their systems to deal with the late tax law changes that occurred.
Have you ever received an IRS notice? Does even the thought of receiving a notice from the government send you running for cover?
Every year millions and millions of letters and notices get sent to taxpayers. They have become almost routine, and receiving one doesn't mean you need to worry.
Here are some things to know about IRS notices that hopefully will help ease your anxiety - just in case one shows up in your mailbox.
First, whatever you do, DON'T PANIC!
Many of these letters can be dealt with simply and painlessly. Often they are generated automatically by IRS computers, so it doesn't mean someone is looking at your return or that it is being investigated.
There are number of reasons the IRS sends notices to taxpayers. The notice may be requesting payment of taxes (if for some reason you haven't paid all that you owe), notifying you of a change to your account or just requesting additional information.
The notice you receive normally covers a very specific issue about your account or tax return.
Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry. Read it carefully before acting on it to make sure you understand what it's all about.
If you receive a correction notice, you should review the correspondence and compare it with the information on your return. If you find that you agree with the correction to your account, usually no reply is necessary unless a payment is due.
If you do not agree with the correction the IRS made (and guess what, that's OK; disagreeing does not trigger an audit or other adverse reaction), it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the notice. If you replied in some way, again don't panic when you don't hear back immediately. The IRS say to allow at least 30 days for a response from them. I say, make it more like 60 to 90 days based on my experience with them.
The nice thing is most correspondence can be handled without calling or visiting an IRS office. However, if you do have questions, call the telephone number in the notice. Have a copy of your tax return and the correspondence available when you call, to help the IRS respond to your inquiry. Warning - be prepared to wait for awhile on the line to actually get to speak to someone.
Also, it's important that you keep copies of any correspondence with your tax records, including notes from phone calls. The IRS representative will give you a name and identification number. Be sure you write that down.
One last (and maybe most important) piece of advice – whatever you do, don't just assume the IRS is correct and give in. One of the most common mistakes I see of people, for instance, is to fire off a requested payment without making sure it's really due. The IRS can – and often does – make mistakes; in fact, I dare say the majority of IRS notices we see are unfortunately in error. So do not just take their word for it.
Here's a tip for avoiding many IRS notices in the future – file your future returns electronically (e-filing). E-filing eliminates key-punch errors by the IRS and other problems at the IRS service center that lead to common but unnecessary IRS notices, notices to which you then have to respond.
These are totally avoidable by e-filing. Not to mention the other advantages of e-filing such as proof of filing, postage savings, faster refunds, the convenience (if you choose) of using automatic debiting for payment of taxes due, and maybe most importantly, privacy and safeguards against identity theft!
