IRS Tax Problems

What to Do If You Receive a Dreaded IRS Letter

What to Do If You Receive a Dreaded IRS Letter

Imagine this scenario. It’s the middle of the summer, or perhaps it’s early fall, or even a few days before a holiday. It can be any day of the year. You’re having a wonderful day, minding your own business, and you go to your mailbox to retrieve the mail. There, in the middle of the throwaways and thank you notes you see an ominous-looking envelope with a return address that reads Internal Revenue Service. You know you’re not expecting a refund. Your blood pressure immediately starts to rise and you feel a bead of cold sweat run down your back that turns into a trickle when you open the letter and see that the IRS says you owe them money What do you do now?

Audits by Mail

These days, most of the correspondence that the IRS sends out is not happy news. With refunds in shorter supply, and largely distributed via direct deposit, most of the letters that the agency sends out are what is known as CP-Series Notices, letting taxpayers know that the agency thinks it has found a mistake on your return. It’s essentially an auditing notice that results from a computer matching program that looks for discrepancies.

The first thing you need to know is that getting this kind of contact is much better than getting a phone call or email: if you receive contact that says it is the IRS electronically or telephonically, it is a scammer– the IRS always sends out its notices via the U.S. Post Office, so at least you know that you’re not being targeted by a bad guy. If you do receive a phone call or email claiming to be the IRS, your best bet is to delete or hang up, and if you’re not sure about it then contact your tax professional.

Still, knowing that an IRS notice is legitimate rather than fraud is cold comfort: nobody wants to be told that they owe more taxes or are being audited, and that is generally what a CP notice indicates. The letter will lay out the amount that the IRS program believes you owe, including any penalty or interest that is a result of the shortfall and where the agency believes the mistake was made. They will also provide information on the steps you can take to dispute their findings or how to send the amount due in.

As aggravating as these letters are, your first response needs to be to calm down and take a deep breath. These computer-generated letters are sent out all year round in a concerted effort by the IRS to make up for a tax shortfall and plethora of mistakes that have come about because more and more taxpayers are doing their own taxes – and doing them incorrectly. Some of this is because there are so many cut-rate tax preparers out there, making tons of mistakes, and some is because people are using cheap tax software that is often not up to the task of preparing complex tax returns accurately. The IRS program works to compare the information on the taxpayer’s return to the documentation they have received from banks, employers and other third parties, and if it doesn’t match up, the audit and collection process begins.

Whatever the reason for you getting a notice, keep one thing in mind: quite frequently, the information in the IRS letter is simply wrong. Because they are generated by a computer program, they do not pick up on subtleties or information that is contained in attachments or schedules included with your return. Still, the fact that they may be wrong doesn’t mean that you should do nothing. There is a 30-day deadline for responses, and failing to reply or provide some kind of answer within that time frame can lead to big problems, including even more penalties.

The other thing you need to realize is that when you get an IRS letter, it might be an indication that you’ve been a victim of ID theft. Take these notices seriously, as the problem detected by the IRS software may be the “canary in the coal mine” that alerts you to a significant problem that needs quick action.

Read it Thoroughly

The best response to an IRS letter is to read it carefully to see what type of notice you’ve received and what kind of action needs to be taken. There are many different types of IRS notices: if you get a CP2000 notice, you will see that it includes some amount that the agency is suggesting you need to pay, as well as information on how to dispute the contents of the letter. As tempting as it is to toss the letter in the trash, the appropriate response is to take it to your tax professional for review. If the IRS is wrong then the professional will prepare a letter explaining why and providing the documentation necessary to prove it. If they are right, then the professional will let you know so that you can take action to correct the problem.

The one thing that you should not do is ignore a letter from the IRS. Doing so will only lead to the agency moving more aggressively to collect the money that it is owed and letting too much time go by will only lead to you having fewer options and owing more. For assistance in the face of an IRS letter, contact a seasoned tax professional.

Gordon W. McNamee, CPA writes for TaxBuzz, a tax news and advice website. Reach him and his team at [email protected]

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

GORDON W. MCNAMEE, CPA
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