Received a notice from the IRS? You are not alone. The IRS sends out millions of such notices every year to taxpayers. The important thing to remember is not to panic. Follow the directions on the notice, be punctual, and be accurate. The IRS is procedure driven, and a taxpayer that follows that procedure is always rewarded. Here are some additional facts to keep in mind if your receive an IRS notice:
1. The correct response to the notice may be simple, or it may need no response at all. Many notices merely specify what the IRS did with your account, what the IRS has received, or what the IRS has on file. You might be surprised to know how many people march in to their tax lawyer or accountant with IRS notices in hand only to find that no action is required. For example, if you write to the IRS, you’ll likely get several responses. The first will usually just acknowledge your letter and say that they will respond in due course.
2. Read Carefully. This sounds obvious, but many of us don’t read carefully enough. There are many reasons the IRS sends letters and notices. The notice may request payment, may notify you of how the IRS applied a payment you made, may notify you of a change to your account, or may request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Follow Instructions and Keep Copies. Each letter or notice offers specific instructions on what you need to do to satisfy the inquiry. A time frame for response is usually stated. Follow instructions, and respond in an appropriately targeted manner. Where proof will be helpful to your case, attach it (but do not send your only copy). Keep a copy of everything.
4. If You Need More Time, Ask. For many notices, the IRS will grant an extension of time to respond. In some cases, though, it can’t. For example, when you receive a Notice of Deficiency (90-day letter), you must file in Tax Court within 90 days if you want to dispute the matter before paying, and this date can’t be extended. Most other notices are less strict. If you do ask for an extension, confirm it in writing. In fact, confirm in writing everything you do with the IRS.
5. Check the IRS Against Your Own Return or Documents. If you receive a correction notice, review it and compare it carefully with the information on your return. For example, if the IRS notice says you reported $8,500 of miscellaneous income on your return but that a Form 1099 sent to the IRS shows the payment was actually $17,000, check your return to see if the IRS is correct. Sometimes even the IRS is wrong. There could be a mismatch about IRS Form 1099.
6. Make Sure Your Reply is Timely and Complete. If you do not agree with the IRS correction or notice, it is important to 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 (or a copy of the entire notice). Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response (and it often takes longer). Keep a copy of everything you send.
7. The Best Contact Protocol. Most correspondence can be handled without calling or visiting an IRS office, and in fact it is usually better to handle it in writing. However, if you have questions and feel you must speak to someone, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the IRS correspondence handy when you call.
8. Consider Obtaining Professional Help. Strategies in respoinding to an IRS notice have a built-in cost benefit consideration like any other business decision. If the tax amount in dispute is fairly small, bringing in a professional may not make much sense, particularly if you feel you understand the IRS' reasoning and are confident in an appropriate response. However, if the tax point in question is big or involves bet-the-company stakes, get some help. There is no substitute for the experience and training that a tax accountant or attorney brings to the table.