After you file your taxes process all of your W-2s and 1099-Cs, you feel a sense of relief. That is until you receive correspondence or a notice from the Internal Revenue Service (IRS). Don’t panic because the IRS sends many types of notices and letters. Typically, there are clear instructions on what the IRS needs a taxpayer to do. If you have questions, you can reach out to the IRS directly or our Estess CPAs team.
The standard IRS notices and letters inform you of the following:
- There is a delay in processing your tax return
- The IRS has questions about your tax return
- There is a correction or change made to your return.
- You owe the IRS money due to the correction or change in your return
- The tax return you filed needs to be corrected due to unreported income from another source
- Your tax return was randomly selected for review based on an annual statistical algorithm.
- You need to validate your identity. For example, you may need to verify your social security number.
- The IRS is sending you a Final Notice of Intent to Levy and a Notice of your right to a hearing.
If the correspondence or notice from the IRS indicates that a response is requested, make sure you respond within the given time frame. A prompt and timely response will help reduce or eliminate additional penalties or preserve your right to appeal. Even if you disagree with the findings from the IRS, you must respond or take action. In your response, you will want to include the CP or LTR number found on either the top or bottom right-hand corner of the correspondence. If you speak to an IRS representative on the phone, be sure to note the agent’s name, ID number, and the date and time of your phone call.
Let’s review the most common types of IRS letters and what they might mean for your situation.
CP2000 Notice This notice is issued when the income or payment information doesn’t match the information reported on the tax return. What should you do? Complete the response form per the instructions, and contact the IRS agent directly.
CP11 This letter is sent when there are changes to a tax return or a balance due. What should you do? Complete the response form per the instructions, and contact the IRS agent directly.
CP12 Notice This notice is issued when the IRS corrects one or more mistakes on a taxpayer’s return, and a payment has become an overpayment or an original overpayment amount has changed. What should you do? Compare the changes to your tax return, update the return in your records, and contact the IRS within 60 days.
CP501 – Notice of a balance due to the IRS. What should you do? Contact the IRS by telephone or letter if you disagree with the balance. If you cannot pay the amount in full, you can set up a payment agreement with the IRS.
For the IRS, certified mail is a form of advance notification that begins the ticking timer for when important action may be taken, usually after the taxpayer has exhausted their right to appeal. Listed below are some of the most common reasons why you received a certificate from the IRS.
An IRS Notice of Deficiency
The IRS conducts audits and will send you a certified letter called a notice of deficiency. According to the IRS, this notice is a certified one because the IRS must wait 90 days (150 days if you live outside the United States) before assessing the additional tax that the IRS claims you should pay.
If you disagree with the IRS notice, you must file a petition with Tax Court to contest it before the 90th day has passed. It is advisable to send the petition by certified mail for proof and tracking.
Notice of the Filing of a Federal Tax Lien
A tax audit, a penalty assessment, or a tax return with a balance due have all resulted in you owing the IRS. If you received this letter, the lien has already been filed. Since the IRS is statutorily required to give you notice by certified mail or in person within five days after it filed this notice, it is certified by the IRS.
A collection due process hearing can be requested if you disagree with the IRS. However, you have no more than 35 days from the date of the lien filing to file your protest. It is advisable to send proof of the collection due process hearing by certified mail.
Final Notice of Intent to Levy and Notice of Your Right to a Hearing – This is the only notice that permits the IRS to take action against a taxpayer. If you have received this notice, you have already received several other communications from the IRS. Once this notice is delivered, you have 30-days before the IRS is legally entitled to take action. You can request a meeting with an IRS appeals officer or start collection due process.
If you receive certified mail from the IRS Contact your CPA and a tax attorney who can explain what options are available.
If you are required to pay additional taxes to the IRS, and you agree with their findings, you still have a few options available to you:
- Pay the amount due in its entirety
- Pay a portion of what you owe
- Apply for an Online Payment Agreement or Offer in Compromise.
Remember that the IRS will never ask taxpayers for personal information via text, email, or social media sites. If the letter asks for specific payment information via mail or telephone, it’s a scam. Fraudsters will attempt to collect your credit card or debit card information. If you are suspicious about any letter you received, call the IRS hotline at 1-800-829-1040.
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Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Whether viewed or subsequently printed, any information contained in this article cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230