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What to Do When You Receive an IRS Notice

April 21, 2015

Receiving an IRS notice can be worrisome because the first thing that comes to your mind is back taxes or an audit. The truth is that the IRS sends notices strictly to provide information to taxpayers, as well. If you receive a notice following tax season, it may be about changes that the IRS made on your tax return, a notice of failure to file a tax return, or claiming incorrect credits.

The IRS also sends notices about back taxes. These initial notices are sent to inform you that you have a balance, how much you owe, and how you can pay it back. If necessary, you can file an IRS installment agreement request to pay back your debt in monthly installments.

When you receive an IRS notice, you should consider the following points as shared by Forbes, to ensure that you respond properly and in time, if necessary:

1. Understand You Are Not Alone. Every year the IRS sends out millions of letters and notices. If you have a power of attorney on file–which can be a good idea if you’re worried about missing something–the IRS will send a copy to your designated attorney. Powers of attorney are submitted on IRS Form 2848. Even if you don’t have a power of attorney on file, the IRS is (quite appropriately) procedure-conscious in the extreme. That means you’ll often receive multiple notices about the same thing.

2. Don’t Panic. The IRS itself says this. You should take it to heart, for it is more important than you might think. First, open the envelope–don’t assume you know what it is. Not every envelope from the IRS is a bill or even bad news. Many IRS letters and notices can be dealt with simply and painlessly.

In fact, many 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 into 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. For lots more about IRS bills and Notices, see IRS Publication 594, The IRS Collection Process.

3. Read Carefully. This sounds silly, 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.

4. 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.

5. 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.

6. 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 $6,129 of miscellaneous income on your return but that a Form 1099 sent to the IRS shows the payment was actually $16,129, check your return to see if the IRS is correct. Sometimes even the IRS is wrong. There could be a mismatch with IRS Form 1099.

7. You May Not Need to Reply. If you agree with an IRS correction to your account, no reply is usually necessary–unless a payment is due. Sometimes the notice will say you will be billed. Sometimes you can expedite the billing (which may reduce interest charges that may be added) if you sign and return the notice indicating your agreement. Be careful about such matters, and make sure you want to agree rather than contest the notice or issue.

8. 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 is 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.