IRS Tax Problems

Did You Get a Notice From the IRS? Find Out What To Do Next From These Experts

Did You Get a Notice From the IRS? Find Out What To Do Next From These Experts

Nobody wants to walk out to their mailbox one day and find a letter from the Internal Revenue Service, yet this is exactly what happens to millions of Americans each year. According to the IRS's own internal audit rates, about one million returns were audited in 2016 alone – representing about 0.7% of all returns that were filed.

But even something like an audit isn't necessarily the only reason why you might find yourself on the receiving end of a notice from the IRS. A failure to pay your taxes on time (or in full), an issue that was discovered with your account, a discrepancy with some of the forms that you've filed, or even inadequate information affect both personal accounts and business owners alike. The chances are high that at some point, this type of situation can and will happen to you.

With that in mind, we talked to personal finance experts not about why you might be getting a notice from the IRS – but about what you should do immediately after. Though the notice itself may seem scary, the good news is that your next steps will likely be anything but.

Keep Calm and Carry On

Regardless of whether you've received an IRS notice for your personal taxes or on behalf of your business, the first thing that you should do is stay calm. Correspondence with the IRS does not necessarily mean that you're in trouble. Peter W. Flournoy, CPA said that people should "not assume that they have done anything wrong. Remain calm and read the entire letter to determine what you are being asked for and when you are required to respond."

Many experts echoed this sentiment, like Ray Flatland of Lodestar Tax and Accounting who said, "Do NOT panic, but contact your tax professional right away. Don't try to handle things yourself."

Bernell Ward of Ward's Accounting Service, Inc. agreed, stating that anyone who receives a notice "should take it to their tax preparer to explain it if they don't understand." Part of making the right decision during this time will always involve understanding exactly what you're supposed to be doing in the first place.

"If there is an audit, do yourself a favor and contact a qualified tax resolution professional," said Luba Milgram of StarLite Tax Solutions. "Questions are a normal part of the audit process to be sure, as the IRS needs to get more information from you. However, some of these questions can be invasive and occasionally downright intrusive. Giving the wrong answer could make a legitimate problem even worse, so it's best to go in with someone by your side."

John Ellis of The John Ellis Company said that the biggest mistake someone could make in this situation is actually inaction. "Do not ignore it," he said. "Open it up and read what it says because it might not be as scary as you think."

Make Sure You Have All the Information

Nicole Davis of Butler-Davis Tax & Accounting, LLC said that knowledge is absolutely power in these types of circumstances. "If a taxpayer receives a notice from the IRS, he or she should review it carefully to determine what year the tax notice applies to," she said.

Gerri Lazarre of TriMergeTax agreed, saying that "the best advice for a taxpayer that receives a notice from the IRS is to first carefully read the explanation and reason for the contact, along with the instructions on how to handle the issue." He went on to say that "most notices can be resolved quite easily, and they will always provide a contact phone number at the top right-hand corner if you have questions."

Brian Dela Cruz of Take Flight Business Solutions, LLC said, "If you choose to read the notice yourself, read it carefully and several times if needed to fully understand why the IRS is writing you. If you are still having difficulty, contact a tax professional to help you interpret the letter."

Linda Feliciano of the Asher Business Group also discussed the importance of keeping a record of the situation for your own reference moving forward. If you made some type of mistake in the past that led to the notice, making an effort to understand the situation fully now can help you avoid falling into the same trap again down the road.

She said that "if you have verified that the information is accurate, proceed to read the information provided on the top right of the letter and make note of the notice number and the tax year that is being questioned. Look for key words that will enable you to know what your next action steps are, then use your red pen or highlighter to look for key words such as underpayment, audit, identity theft, interest, fees, penalties, and dates."

Take the Appropriate Action

Many of the tax professionals also agreed that in many situations, the best step to take is the one that the IRS is writing you about in the first place. For the sake of argument, say that you get an IRS notification alerting you to a filing discrepancy that means you still owe taxes on your prior year's return. The IRS will tell you exactly what the problem was and how much money you owe, so the best thing to do at that point would be to just pay it.

"If they agree with the letter, pay the amount immediately," said Carey Gay of Treasure Tax, LLC.

However, it is once again important to recognize when you should bring in some additional assistance if you're uncomfortable moving forward on your own. This is especially true in a situation where business taxes may be in question. If you don't feel comfortable dealing with the issue, Katherine M. Bennett, CPA said, "Don't call the IRS and try to handle it yourself. Always contact a CPA or other professional and have them do it for you."

Time Is of the Essence

Even though all experts agree that receiving a notice from the IRS isn't necessarily a bad thing, it is absolutely something that you want to get taken care of as soon as possible. Terrence O'Neill, EA, LLC perhaps said it best when he said, "My best advice is 'do NOT procrastinate.'"

Joshua Standley of DKK Accounting, LLC agreed, stating that "you have a limited amount time to respond to a notice, and delaying to take care of it may result in additional penalties and interest that could have been easily avoided."

 Lee Reams II, writes for TaxBuzz, a tax news and advice website. Reach him at [email protected] or on LinkedIn.

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Lee Reams II

Lee Reams II

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I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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