The Internal Revenue Service (IRS) sends millions of letters and notices to taxpayers every year, many of which (not coincidentally) arrive in the wake of tax filing season. Some letters/notices are to alert taxpayers of unpaid or underpaid amounts of tax as determined by the IRS, or conversely, advise of overpaid amounts resulting in refunds or credits towards other liabilities. Some notices warn of impending collection actions by the IRS (e.g., liens or levies) for past failures to pay taxes or even failures to file returns. Some notices are to alert taxpayers of rather simple and mundane corrections made by the IRS to filed tax returns to fix simple mathematical errors. Some letters or notices request further documentation for routine information reported on a return.
The common and even understandable first reactions to such letters or notices that arrive from the IRS might be confusion, denial, distress or even outright panic. Instead of reacting this way, you are better served by calmly reviewing and trying to understand the letter or notice, and then timely responding directly to the correspondence or immediately contacting your professional tax preparer or tax advisor to obtain assistance. To help you deal with these often unwelcome pieces of mail, here are some things you should know and consider with regard to IRS notices—just in case one shows up in your mailbox.
- First and most importantly, don’t ignore these letters and notices. The letters and notices will continue to arrive from the IRS if you do not deal with the underlying reason or reasons causing the IRS to mail the notices to you. The likely negative ramifications of not timely responding to the letters or notices also could get progressively worse if the issues are not properly addressed, including the loss or expiration of various remedies and appeal rights. You cannot deal with the problem if you do not even acknowledge that one might exist.
- Second and also very important, don’t panic. Many of these letters can be dealt with simply and painlessly, either by yourself, by your professional tax return preparer, or by a qualified tax attorney.
- When you receive a notice or letter from the IRS, immediately read it closely to see exactly what the notice or letter is saying or requesting. Each letter and notice generally will offer specific instructions on what you are asked to do to satisfy the inquiry. If you do not clearly understand the notice, you can contact the IRS at the phone number which is required by law to be listed on the notice or letter. However, be aware that when you communicate with the IRS by telephone or by mail, everything you say or reveal to an IRS agent can and generally will be recorded and all information retained, including possibly for later use against you. Although you should not adopt an attitude of paranoia when dealing with the IRS, if you are at all unsure about contacting the IRS or about where you stand legally with regard to the requested information, you instead should immediately call your professional tax return preparer or a qualified tax attorney for advice on how to proceed. With a tax attorney, you also have the certainty and general protection of attorney-client privilege and confidentiality.
- Don’t immediately assume the worst: you are not necessarily in trouble or do not necessarily owe more money when you receive a notice from the IRS. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, may notify you of changes to your account, or may request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Again, if you do not clearly understand the notice or what it is requesting, you can (subject to the warning above) contact the IRS at the phone number listed on the notice or letter. If you are at all unsure about contacting the IRS or about what you might reveal (even in seemingly casual conversation with an IRS employee), you instead should immediately call your professional tax return preparer or a qualified tax attorney.
- Don’t immediately assume the notice or letter is correct or accurate. If you receive a correction notice, you should review the correspondence and compare it with the information on your return. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise. If you do not agree with the correction the IRS made, it is important that you timely respond as requested, or immediately contact your professional tax return preparer or other tax professional to determine how you should respond (including to timely challenge the changes indicated in the notice).
- If you choose to handle the matter on your own without counsel or another authorized representative, you should send a written explanation of why you disagree with the notice and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. (Bear in mind the caution above with regard to communications with the IRS.) Mail the information to the IRS address shown in the upper left-hand corner of the notice. The IRS advises that you should allow at least 30 days for a response, although be aware that the “response” often is a computer-generated form letter that merely states that your correspondence was received and that it is being reviewed. Additional letters of this same nature may continue to arrive for some time before the matter is resolved.
- The IRS advises taxpayers that most correspondence can be handled without calling or visiting an IRS office, and this generally is true. If you have questions, you can call the telephone number in the upper right-hand corner of the notice (again subject to the above caution about communicating with IRS personnel). It is a good idea to have a copy of your tax return and the correspondence available if you call to receive help from the IRS to respond to your inquiry. This information also will be crucial if you choose to seek assistance from your professional tax preparer or from a tax attorney.
- Be aware of your rights as a taxpayer. Some notices or letters will request a taxpayer to bring additional information or records to a local IRS office, and sometimes also will request that the taxpayer appear and answer questions. Federal law requires that such notices be accompanied by IRS Publication 1 which includes a notice to the taxpayer of his or her rights (or for a company, its rights) to be represented before the IRS by an authorized representative. Whether or not such notice is included or provided, a taxpayer always has the right to be represented before the IRS by an authorized representative, even if an IRS employee says or implies that you do not need an authorized representative to help you. For more information, click on the following link for IRS Publication 1, Your Rights as a Taxpayer.
- Always keep copies with your records of any and all correspondence you send to or receive from the IRS (especially for future reference to help a tax professional that you later might hire to take over the matter for you). Furthermore, to protect you in case you receive contradictory or erroneous advice from an IRS representative, also keep a record of the names and identification numbers of every IRS agent you speak with on the phone with regard to the matter in the letter or notice. All IRS personnel are required to give you their name and identification number, and generally will offer it at the beginning of every phone call.
For more information about IRS notices and bills and how to respond to such correspondence, consult your professional tax preparer or tax advisor, or see Publication 594, The IRS Collection Process. Information about penalties and interest also is available in Publication 17, Your Federal Income Tax for Individuals. These publication are available from the IRS website, www.IRS.gov, and also are available by calling 800-TAX-FORM (800-829-3676), or by clicking on the embedded links herein.
