Receiving an IRS notice in the mail can be scary, but the situation can be less daunting if you know what to do. First, it’s important to note that not all IRS notices are negative as some are only informational. In any case, taxpayers should know what steps to take upon receiving an IRS notice.
Do Review Your IRS Notice
The IRS will send notices for a variety of reasons, from notifying you of a balance due, to informing you of a delay in processing your return, whether your return is missing a schedule or form required for processing, to informing you of a potential audit. Carefully review your notice for important information, and if you’re unsure of what the notice means, you can look up the CP or LTR number, located on the top or bottom right-hand corner of the notice. It also shows the date and time the IRS expects you to provide the information it is seeking. In the best case scenario, the IRS is pursuing a correspondence audit covering one or two elements of a single year’s tax return, with a deadline by which the IRS expects to receive your reply. Correspondence audits are conducted entirely by mail and makeup 75 to 80 percent of all audits. An in-person interview audit takes place at your local IRS office. A field audit is scheduled for a particular date and time but takes place in your home or office. It is considered the most comprehensive type of audit.
Don’t Panic
If the information on the notice looks inaccurate, you should respond with a written dispute. Doing so in a timely manner can help minimize interest and penalty fees. Be sure to include any information and supplemental documentation to support your case. Typically, the IRS should respond to disputes within 30 days. Understand what auditors are seeking. While each audit is different, all audits focus on three basic questions:
- Is your business truly a business – or just a hobby?
- Are your deductions legitimate?
- Did you report all your income?
Gather Your Documentation
Once you have determined what information the IRS is seeking, it’s time to begin gathering your paperwork. If the IRS is challenging a particular deduction or tax credit that you claimed, gather whatever documentation you have to support your claim, including bank statements, receipts, and invoices. Provide as much information as possible concerning the inquiries the IRS has made, but do not volunteer information the IRS has not requested. Also, make photocopies of everything that you intend to provide to the IRS. Never give up your original documents. If you must report in person for an office audit or prepare your home or office for a field audit, ensure that your paperwork – and your representative – will be available and ready. Prepare your responses to the points that have been raised for the years that have been included in the audit notification letter.
Do Respond in a Timely Manner
If the information on the notice looks inaccurate, you should respond with a written dispute. Doing so in a timely manner can help minimize interest and penalty fees. Be sure to include any information and supplemental documentation to support your case. However, do not volunteer information the IRS has not specifically requested. Typically, the IRS should respond to disputes within 30 days.
Do Check for Scams
Remember that the IRS will never contact you via text message or social media. In fact, initial contact from the IRS is usually via mail. If the notice does not appear credible, you can always check your online tax account on the IRS website to confirm balances due, communication preferences, and more. The IRS will notify a taxpayer if they believe that there may be fraudulent activity occurring on their tax return. The IRS will send a letter to you inquiring about a suspicious tax return that you may have not filed. The IRS will request that you do not e-file your return because of the duplicate social security number that was used. Act quickly should you receive this letter from the IRS to avoid further fraudulent activity with your personal information.
Do Not Ignore the Notice
Some IRS notices are purely informational and require no additional action. However, do not assume this is always the case and ignore the notice. Simple mistakes made on your return or underreporting income can result in the IRS requesting action from you. A notice can also be a notification that you owe taxes and will give instructions on how to pay the balance by the due date.
Do Not Reply Unless Instructed To Do So
Typically, a response is not needed. Once you confirm a response is not required, you can proceed with other actions. Even if the notice informs you of a balance due, there is no need to contact the IRS unless you do not agree with the information on the notice.
Tax Relief Professionals for Those Who Owe
Even if you prepare your own returns, having a professional from Optima Tax Relief check out your response before you return it to the IRS may save you from making a costly error. If you have been contacted for an in-person interview audit or a field audit, the IRS allows you to be accompanied by a representative. Take advantage of this opportunity. You’ll likely be nervous during the procedure and may share information that might prompt the IRS agent to probe beyond the original scope of inquiry. Not only that, most IRS agents prefer dealing with a professional.
The best thing to do to avoid receiving warnings from the IRS is to always ensure that you remain compliant with tax law. However, if you find yourself in a situation where you owe the IRS, tax relief is always an option. If you need tax help, give Optima a call at 800-536-0734 for a free consultation with one of our tax professionals.
