What to Do If You Receive a Notice From the IRS (2024)
It’s that time of year again: IRS notice season. No, it’s not an official season, but for tax professionals like myself, it might as well be!
Have you received a notice from the IRS or your state tax agency? If so, don’t panic. As a trusted CPA who’s helped numerous clients navigate these waters, I’ll guide you through what to do if you find one of these letters in your mailbox.
Key Takeaways:
- Notices are usually sent out during the spring and summer months following tax filing deadlines.
- Most notices are automatically generated due to discrepancies in reported information.
- The most common reasons for notices are mistakes in payment information or unreported income.
- If you receive a notice, don’t panic—most notices are easily resolved, and a CPA who provides professional tax services can help you dispute or handle complex notices.
When are Notices Sent Out?
“Notice season” begins after April 15th and can last for two to three months. This is when the IRS and state tax agencies are processing tax returns (and inevitably finding errors). When they find an error or discrepancy between the information reported on your return and the information they have on file, they will automatically send out a letter — AKA, a notice — to the taxpayer.
A notice aims to do two things:
- Inform the taxpayer of the discrepancy
- Provide information as to how the error can be rectified
One thing to remember is that the vast majority of these notices are generated by automated systems — not by IRS agents manually reviewing your return. This automated system matches information from various sources, such as W-2s and 1099s, with what’s reported on your tax return. If there’s a mismatch, out comes a notice!
Common Types of Notices
The most common notices are related to corrections on tax returns, including:
1. Income Discrepancies: When reported income doesn’t match government forms (W-2s, 1099s), this often involves unreported income. What happens if the IRS finds unreported income? You may owe additional taxes, plus penalties and interest.
2. Incorrect Payment Information: This occurs when estimated tax payments are reported incorrectly or applied to the wrong tax year.
3. Unpaid Tax Balances: When taxpayers file returns but forget to pay the amount due, resulting in penalties and interest.
4. Requests for Additional Information: The IRS may need more details to process your return or verify certain deductions or credits.
PS: It’s Probably Not a Tax Audit
If you receive a notice, don’t automatically assume you’re being audited. While audits can occur during “notice season,” they’re much less common than automated notices. Audits typically involve a more detailed review of your tax situation, and aren’t part of the routine notice process.
What To Do If You Receive a Notice
If you find an IRS or state tax agency letter in your mailbox, here’s what you should do:
1. Don’t panic. Remember, most notices are automatically generated and often result from simple mistakes that can be fixed.
2. Read the notice carefully. Understanding your IRS notice letter is crucial. The notice will explain what the issue is, what steps you need to take, and the deadline for rectifying it.
3. Check the information. Compare the information in the notice with your records. If the notice says you didn’t report certain income, check your records to see if that’s correct.
4. Respond promptly. If the notice requires a response, make sure to do so by the deadline provided. Even if you disagree with the notice, it’s important to respond and explain why.
5. Contact a CPA. If you’re at a loss for how to handle your notice, it’s best to consult with a CPA or tax attorney. We can help you understand the notice and determine the best course of action.
“Garbage In, Garbage Out”
Let’s say you’ve been working with a CPA all year long to make sure everything is above board. But when notice season rolls around, you receive a letter in the mail — an IRS notice.
Before you go typing out that angry email to your CPA demanding to know what happened, (please) take a breath and reconsider. In these situations, the vast majority of notices are triggered because the client provided incorrect information during the tax preparation process.
This is why it’s crucial to give your CPA accurate and complete information, so they can prepare your return correctly. As I often tell my clients: “Garbage in, garbage out.”
So, if you’re a client of a CPA and you receive a notice from the IRS, here’s what you can do:
Calmly reach out to your CPA explaining what happened, send them a copy of the notice, and schedule a meeting. Your CPA will be able to work through the notice with you, figure out where things went awry, and get things back on track.
Documentation is Key
One of the most common questions I get regarding notices is how to avoid them! To avoid notices (or effectively respond to them), keep thorough records. This includes:
- Copies of tax returns
- W-2s, 1099s, and other income statements
- Records of any tax payments made (including electronic payment confirmations and canceled checks)
- Any other documents used to prepare your tax return
Keep these records for at least 7 years. If you make payments by check, keep copies of both the front and back of the canceled check, as the back contains important coding information that can help resolve disputes. For electronic payments, save the confirmation emails or screenshots showing the payment details.
How a CPA Can Help You Respond To a Notice
If you receive a notice, a CPA can be invaluable. At Wood CPA, we handle these notices for our current clients at no additional charge for simple issues.
For more complex situations, or for people who aren’t yet clients of ours, we can:
- Analyze the notice and your tax situation
- Communicate with the IRS or state agency on your behalf
- Prepare any necessary responses or amended returns
- Help resolve any penalties or interest charges
In some cases, we may even file a power of attorney form, which allows us to speak directly with the IRS on your behalf. This can be particularly helpful in complex situations or when dealing with significant tax issues.
Example:
When it comes to handling notices, most of the time we find that the IRS is right. However, there are times where we’ve needed to dispute a notice for our clients.
For example, a client of ours did his own return through TurboTax in the year 2020, and accidentally counted his mortgage twice on his return. At the time, TurboTax didn’t flag it, and the IRS didn’t catch it until years later, when he was a client of ours.
They sent him a notice, stating that he owed a very large sum of money. While he did owe money because of this mistake, the IRS was over-estimating his payment because they were completely disallowing his mortgage on his return (counting it zero times instead of just once). This was obviously wrong on their part.
Not only did they claim he owed that money, but because what he “owed” was over 25%, he was also hit with another penalty for grossly underpaying his taxes, adding more charges to an already hefty, incorrect fine.
We were able to dispute the notice, providing documentation to support a portion of the mortgage interest deduction. As a result, we significantly reduced the amount owed and got the penalties removed entirely.
Beware of Scams
One final note: lately there’s been an uptick in scams related to tax filing. People have been reporting that they’ve received calls, texts, and emails claiming they owe money to the IRS.
Remember, the IRS will always initiate contact through mail. If you receive a phone call, email, or text message claiming to be from the IRS, it’s likely a tax scam. Never provide personal or financial information unless you’re 100% positive it’s from the IRS.
Online Access to IRS Notices
Many taxpayers ask, “Can you view IRS notices online?” The answer is yes, but you need to create an account on the IRS website. This can be a convenient way to access your notices and other tax information, but it’s important to remember that not all notices may be available online immediately.
Let Wood CPA Handle Your Tax Notice
Dealing with tax notices can feel stressful, but you don’t have to face them alone. If you’ve received a notice from the IRS or state tax agency and need professional guidance, Wood CPA has you covered. We can review your notice, explain what it means, and guide you through the next steps.
Whether you’re a current client or new to our services, we’re here to provide the expertise you need to resolve tax issues efficiently and effectively. Don’t let tax notices keep you up at night—contact Wood CPA today to schedule a consultation and let us handle your notice so you don’t have to!
