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Field Guide to the Different Types of IRS Notices

by
Lee Reams II
on
7/25/2017
Field Guide to the Different Types of IRS Notices

Did you just get a letter from the IRS in your mailbox, and now you're totally freaking out about possibly owing more money or being smacked with a penalty, despite filing your taxes on time?

Don't panic. Chances are that you're not being audited, but you may be asked to pay overdue or underpaid taxes, or other nasty surprises. Before you have a heart attack opening up that envelope from the IRS, take a look at this field guide to determine what's most likely in the envelope. There's a chance the notice you received was automated and can easily be resolved with a quick mailing or phone call, or even just disregarded altogether.

Why Does the IRS Send Notices?

Most of the notices the IRS sends are automated and based on common errors and discrepancies on tax returns, in addition to corrections made by you or the IRS on the returns already on file. These notices are called CP notices, since they have a "CP" prefix before a number that dictates what type of correction is being made or requested. The notices are generated by the Automated Under Reporter (AUR) program; millions of them are sent to taxpayers every year with no additional actions from IRS employees. With budget cuts and strained staff, the AUR program can effectively reach out to more taxpayers than agents can.

Unlike a request for an audit, these notices are computer-generated and based on calculations that the IRS makes concerning accounts that currently have balances due after the tax filing deadline. The IRS mainframes also know if you haven't filed your taxes at all or sent them in late, but you aren't likely to get a personally addressed audit for this. You'll get an automatic computer-generated notice.

CP notices will always be sent to you by mail to the last known address you used for filing your taxes. If you've never filed taxes, the address on file with any form issuers like W-2s and 1099s is first looked to, followed by your current address on file with the U.S. Postal Service.

The Most Common Notice: CP-2000 for Adjustments to Your Account

The most common automatically generated form from the IRS is the CP-2000. You may get a CP-2000 notice in the mail both for underpaying and overpaying your taxes. It isn't always indicative of a problem.

CP-2000 notices are how the IRS lets you know that they adjusted your account based on what you have reported on your tax return and other tax information in the system reported by third parties (e.g. employers, financial institutions) that are attached to your Social Security number and mandated forms these third parties have to file. If you or the issuer made mistakes on the mandated forms or your tax return, you're likely to get a CP-2000 notice.

You can get also get a CP-2000 based on other personal information, like your dependents' Social Security numbers, that also affect these adjustments, such as if you are divorced and your spouse accidentally claims the same child as a dependent. If you are a victim of identity theft and your Social Security number was already used on someone else's tax documents, you are also very likely to receive this notice due to multiple adjustments that could've been made on your account without your knowledge.

CP-2000 notices aren't bills, However, a tax bill may result from a CP-2000 notice if the adjustment has merit and didn't go in your favor.

"Soft" CP Notices

The following are common CP notices that are called "soft notices" because they serve predominantly as reminders that you owe (or owed) taxes or have corrections that must be made on your tax return. They're "soft" because these issues are easily fixable.

  • CP-05: The IRS is holding your tax refund and reviewing your tax return to verify income, deductions, credits, and other information. Don't ignore this notice, and be prepared to verify what's on your tax return.
  • CP-05A:Your tax return is still under examination, but the IRS definitely needs documentation for what your tax returns say. Respond to this notice immediately.
  • CP-05B:The IRS is holding your tax refund because of discrepancies on your tax return that don't match up with what payers have reported. You need to respond to this notice right away with more information to get your refund correctly calculated and released.
  • CP-07:If you itemized deductions (filed Schedule A for things like mortgage interest, property taxes, charity, etc.), you'll get this notice if the IRS wants to review these items more closely. If you are a nonresident claiming tax treaty benefits, you may also get this notice if your treaty benefits are being reviewed. Hold onto this notice and be prepared to submit documentation if necessary.
  • CP-08:You didn't claim the Additional Child Tax Credit and may be eligible for this benefit. You can disregard this notice, but check with your tax professional if this is the case based on your income and eligible children.
  • CP-09:You didn't claim the Earned Income Tax Credit and may be eligible. You can disregard this notice, but check with your tax professional as well as the EITC tool on the IRS website.
  • CP-10: You'll only get this notice if you made estimated tax payments and opted to have them applied to next year's tax return. The IRS made changes to your return based on miscalculations, which affects the taxes applying toward next year's balance. Hold onto this notice so you're aware of how much of those payments needs to carry over.
  • CP-11A: You will only get this notice if you claimed the Earned Income Tax Credit. The IRS believes there were math errors, and now you owe money because of them. Respond to this notice immediately, and be prepared to show proof of your EITC eligibility.
  • CP-12: You made math errors and the IRS recalculated what was off. Even if you used tax software, make sure you double-check that numbers weren't transposed or entered incorrectly before you file. It also can't hurt to compare your math to theirs. Do not ignore this notice.
  • CP-13: Changes were made to your return due to math errors, but you're not due a refund or don't owe any money based on these changes. You can disregard this notice.
  • CP-13A: Similar to CP-13 except only EITC recipients will get this notice. Errors in calculating EITC resulted in changes to the tax return, but they didn't result in a refund due or taxes owed. You need to pay attention to this notice in case the amount of federal EITC affects any state-level EITC benefits.
  • CP-14: You have a balance due, and this is your first notice that nothing was paid toward it. You can disregard this form unless your balance due doesn't add up, or you don't actually have one.
  • CP-31:If you didn't opt for direct deposit or a payroll card already in your possession, this notice is a reminder to update your address because your refund check got sent back. You can disregard this form if your address on file was already updated, but contact the IRS right away if you have an address change after your tax return was already filed.
  • CP-42: Married and divorced taxpayers will get this notice if your spouse had a past-due tax bill and now all or part of your refund for this year was used to pay it. You may be able to use this notice in an injured spouse claim. Do not ignore this form.
  • CP-49:Some or all of your tax refund was just used to pay down tax debt you owe. You can disregard this form if you were aware your tax refund was being used to pay down past-due tax debt.

CP Notices Pertaining to Identity Theft

Identity theft has become a rampant problem as our world becomes more information-based and dependent on technology. Even if you take great care to shred all your papers, use two-factor authentification on your accounts, and other safeguards, it's still possible for someone to use your Social Security number to file a fake tax return or fraudulently claim you or your dependents on their tax return. There is a separate set of common CP notices just for identity theft:

  • CP-01:The IRS has verified your identity theft claim and put an identity theft flag on your account. You can disregard this notice but should keep it until the investigation is over. You or a tax professional also must contact the IRS concerning identity theft in the first place.
  • CP-01A: You were issued an Identity Protection Personal Identification Number. Hold onto this notice so you know how to use this PIN while the identity theft is under investigation.
  • CP-01B:If you have an identity theft flag on your account, you'll get this notice if the IRS needs more information from you to accurately process your tax return. You need to address this notice right away.
  • CP-01H:The IRS can't process your return because they locked your account since the Social Security number for the taxpayer or spouse on your return belongs to someone who died before the tax year on the form. You need to address this notice right away.
  • CP-01S:The IRS received your information about your being a victim of identity theft. Hold onto this notice until you get a CP-01.

"Hard" CP Notices

The following are common CP notices that are called "hard notices" because they serve as much harsher warnings for collection actions and more severe circumstances that will affect your account. Hard notices may have an LT prefix instead, which refers to the the liens and levy processes. These CP and LT notices should definitely not be ignored, and you should deal with them immediately.

  • CP-18:The IRS thinks you incorrectly claimed deductions and/or credits, and you now have a smaller refund.
  • CP-19: You owe more taxes because of incorrectly claiming deductions and/or credits.
  • CP-90: This is a final notice that the IRS has intent to levy your assets (like your bank and retirement accounts) because of your unpaid tax bills. It serves to notify you of your right to a hearing before the actual seizure of your assets begins.
  • CP-91:Similar to the CP-90, this is another final notice of your right to a hearing and intent to levy but meant for garnishing your Social Security benefits.
  • CP-161: A reminder that you need to pay your tax bill.
  • LT-11:The IRS hasn't received any payments for your overdue taxes. They now intend to seize your property.
  • LT-14: You have an unpaid balance, and the IRS hasn't been able to contact you, so you or your tax professional representing you needs to call ASAP.
  • LT-16: A warning that the IRS may take enforcement actions because you haven't responded to previous notices concerning your missing tax returns and/or unpaid taxes.
  • LT-18: You haven't responded to requests for past-due tax returns.
  • LT-24:If you made an offer for a payment plan, the IRS received it but wants more information about your financial situation.

While this guide isn't completely exhaustive, since the IRS issues hundreds of different automated notices in varying levels of severity, these notices are among the most common ones the IRS sends out. The more "exotic" CP notices are usually intended for less common tax situations, as well as certain niches of taxpayers such as members of the military, clergy, business owners, and other groups that have their own tax issues beyond the scope of this guide.

What Should I Do if I Receive a CP Notice?

Sometimes there will be instructions with your notice, depending on which notice you received and the issue. Other times, instructions will be missing or unclear, and you will need to contact the IRS or find a tax professional to do so for you. Automated IRS letters will never be as thorough or precise as manually written notices like audit requests, and this is actually a good thing because it means your account isn't being targeted (for now).

While there are some notices that require no action, you should always read it first and look for instructions. If you're unsure what the notice means and/or it lacks instructions for follow-up, you should definitely contact a tax professional if you are unable to get in touch with the IRS.

For most notices, you have 30 days to respond (60 days if you are outside the country) and submit any necessary proof and explanations if you disagree with the IRS findings. Responding to a notice post-haste is usually the best course of action. This is especially true if you already have past-due taxes and/or the IRS is claiming you owe additional tax, because interest will continue to mount.

As you can see, most of the soft notices can be either disregarded or just serve as a warning to get some paperwork ready. However, some soft notices and all hard notices require immediate attention. When in doubt about any notices or how to dispute them, always contact a tax professional. Identity theft is another major source of consternation, for which you may want to proceed with a tax professional's assistance.

The contents of some notices are more urgent than others. Even the IRS makes mistakes, so be sure to seek a local tax professional who is familiar with the language of CP and LT notices if you need to dispute IRS corrections or solve an urgent collections matter.

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

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