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What Do You Do the Day the IRS Notice Arrives?

Writtin by: Paul Bogdanoff, CPA and Tim Dages, CPA

The dreaded day arrives and you receive a Notice from the Internal Revenue Services; what do you do?  First, open the envelope.  The IRS sends millions of letters and notices each year. This is the way the IRS contacts taxpayers, not by phone calls and emails, which are scams. Some of these letters and notices may be dealt with painlessly.  A significant number of these notices merely indicate the changes that the IRS made to your account, based upon what the IRS has received relating to your account.

First, read the letter or notice and follow the instructions.  If the letter requires a response or a payment, send in your response or payment by the required due date.  However, if the IRS is requesting payment of additional taxes, you should verify that the additional taxes are due before making the payment.  Keep copies of your reply and retain the original notice. Where additional proof is required or will help your case, attach a copy of the document, but do not send in the original.  Generally, if you are sending a response to an IRS question, the first IRS response is an acknowledgement of your letter and an indication of when the IRS will respond. You may find further detail on the IRS Collection Process at IRS Publication 594, The IRS Collection Process.

If you receive a correction notice, carefully compare the summary of your return on the IRS notice to the information on your return. Believe it or not, sometimes even the IRS is wrong. However, if you agree with the IRS’s proposed correction, a reply may not be necessary. But if additional tax is due then you should sign the notice that you agree with the correction and send in the payment promptly. By paying the tax due as soon as possible, will reduce the amount of additional interest that will be added to your bill.

As you review the notice, be cautious and make sure you want to agree with the proposed changes rather than dispute the notice. If you disagree with all or part of the notice it is important to respond. Provide an explanation why you do not agree with the changes. Attach any additional documents that will support your position, along with the bottom tear-off portion of the notice, or a copy of the entire notice. Mail your reply to the address shown on the notice. Retain a copy of everything you send to the IRS and allow at least 30 days for a response, but more often, it will take longer

In some instances, the IRS will grant an extension of time to respond if it is required. In this case call the IRS phone number listed on the notice to request the extension.  Be sure to have a reasonable cause why additional time should be granted. In some instances the IRS can not grant an extension. One example would be a Notice of Deficiency (90-day letter).  A response to The Notice of Deficiency must file in Tax Court within 90 days if you want to contest the matter, and this date may not 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. Furthermore, any conversation that you have with an IRS representative you should note the IRS representative’s name and badge number, the date of your conversation and what was discussed and agreed to as well as any action that is required. 

The vast majority of correspondence can be handled without calling or visiting an IRS office. I have only visited an IRS office on a few occasions and it is my experience that it is usually better to handle IRS inquiries in writing. But if you have questions and feel you must speak to someone then calling the IRS is the only option. Have a copy of your tax return, supporting documents and the IRS correspondence handy when you call. You may be in for a long wait on the telephone. It is my experience the best time to call the IRS is early in the morning or after 5:00 PM.

All phone calls or visits to the IRS in person should be documented carefully. You may ask the IRS representatives to confirm what they said in writing or via fax. However, the IRS is a huge government agency so don’t assume they will. If you receive a 30-day extension to respond, it is a good idea to send a short letter confirming that’s what the IRS agreed to over the phone, including the name and badge number of the person who gave you the extension. Keep a copy.

Often the proposed changes are small, so it may not pay to fight with the IRS. Just pay the bill and move on, don’t waste your time or risk additional scrutiny. Of course, what is small to one person may be a major bill to someone else. And most taxpayers do not want to pay any additional tax.

Finally, because a tax lawyer or accountant has much more experience they may be able to do a better job than you, so consider getting professional help by calling the tax representatives at Bogdanoff Dages and Co., P. C., especially if the tax dollars are big or involves a complex tax issue.