IRS Notice: Steps to Follow
If you receive the IRS Notice or Letter
- >DO NOT IGNORE IT! Like most other bad things, it will only get worse when ignored.
- DO NOT PANIC. The IRS computers automatically generate notices and mail them without human interaction. Our experience is that tax notices are often inaccurate.
- READ THE NOTICE CAREFULLY. Do not focus on threatening language and pay attention to the details instead: deadlines, required documents, filing years.
- FOCUS ON THE YEAR AND TAX FORM in question. It is easy to jump to conclusions, so make sure you understand which tax form and year (or quarter) is being addressed.
- RESPOND BEFORE THE DEADLINE. Most notices have 30 days or 90 days to respond to it. If you are unsure you can handle it before the deadline, request additional time.
- DO NOT GET ANGRY OR BLAME YOUR TAX PROFESSIONAL. The IRS has the authority from Congress to audit any taxpayer's last three tax returns. The IRS uses a complex statistical formula to try and identify where they can generate the most tax revenue, but they still use a random sample to keep everyone respectful of their civic duty to pay taxes.
- DO NOT SEND MONEY until and unless you are sure you agree with the notice. People often pay tax they did not owe because they are intimidated by the IRS and want to 'get over with it'.
- READ THE NOTICE AGAIN. Read the notice in detail, and try to find the reason they say you owe or what you did wrong. Highlight or underline the main points.
- CONTACT THE PREPARER. If the tax return in question was prepared by a professional, make sure to contact the preparer and send (mail, fax or email) them a copy. They will help you determine one of three possibilities: 1) the IRS made the mistake or has incorrect information, 2) something was missed in the preparation, or 3) vital information was not provided to the preparer. If it was a preparation error, the preparer should be willing to handle the matter for you at no extra fee. If it was an IRS error, or an error in the information you provided, you will want to ask about fees before having your tax preparer handle it for you.
- DOCUMENT COMMUNICATION. Communicate before the deadline. Send letters via certified mail, and keep a copy for your records. If calling, make detailed notes of the conversation, including date, time, number called, and the name and ID number of the IRS agent.
- REQUEST ADDITIONAL TIME. If you are getting close to the deadline stated in the notice, call for additional time. You can usually obtain an additional 60 days to respond to the notice if you will simply contact the IRS (before the deadline stated in the notice) by phone, fax, or letter that you need more time to gather facts and respond to the notice. If you call, document (see #10 above).
- BE PATIENT. If the notice is incorrect you will have the burden of proving your side. So, be prepared for a lengthy process to get it straightened out. It can take months of phone calls and letters during which the IRS computers will continue sending out notices. Keep detailed notes of all phone calls, and keep copies of all letters sent and received.
- PAYMENT. If you understand the notice (and the cause of the additional tax) and you agree that you owe more taxes, then you can either pay the tax or request a payment plan (installment arrangement). Most notices have a place to sign if you agree with their assessment. If you return the signed assessment without full payment, they will send you a bill for the balance and Form 9465, Installment Agreement Request. Complete and submit the Installment Agreement Request if you cannot pay the balance due. Be sure to choose a monthly amount you can afford, since missing a payment will void your installment agreement.
- REQUEST ABATEMENT OF PENALTIES. You may be able to receive an abatement of all or most of the penalties that have been assessed and disclosed in the notice. In general, taxes and interest are statutory and cannot be abated, but penalties can. I suggest that you pay only the tax portion of the notice (if you agree that you owe it) and include with your payment a written request for abatement of penalties along with a reason. The IRS is required to consider waiving penalties for reasonable cause.
Please watch the IRS video presentation on this topic.