So, you’re holding the envelope in your hand with an IRS return label. You aren’t expecting a refund check so you’re a little apprehensive to open an envelope from the IRS. Let me make an important suggestion to you. Open the envelope because I can assure you if they are sending you a letter or a notice and they are requesting information, they are not going to go away simply because you don’t respond to their first communication. Sometimes they are notifying you that they disagree with your numbers and they show you your numbers as filed and then they show you the changes that they are suggesting need to be made and the reasons for them. Sometimes the changes are minor and the additional tax due is also minor but sometimes they are five figures or more.
Often when the tax due is substantial it is because of a piggyback effect where one change when made, causes another change like an increase in taxable income sometimes kicks a return into high enough income to cause phase outs of certain itemized deductions or personal exemptions that didn’t apply before the increase. When this is the case if you can prove that the change they are making is incorrect it negates all the additional changes that were piggy-backed onto it including penalties that may have kicked in because of it.
There are many different IRS notices that you might receive, too many to even begin to list them, but the one thing that they all have in common is that there are a few important steps to follow if you receive one.
First – OPEN THE ENVELOPE as soon as you receive it. Being afraid and not opening it will not make it go away.
Second – READ the words that are on the pages in front of your eyes. They are usually written in common easy to read basic language that is generally understandable enough that you can determine why you are being contacted.
Third – FOLLOW THE INSTRUCTIONS that they are giving you. This often includes sending them missing documentation of your numbers or giving them an explanation of a number that seems unreasonable to them. If you have reason to believe that the change is correct but you cannot pay the additional taxes being assessed, there is generally information included telling you how to request an installment agreement. If you aren’t sure if the notice is correct or incorrect, there is always a contact number on the letter or notice to call for assistance. Many of the notices are now in a format that you can choose from several responses and then sign and date the notice; such as I agree and payment is enclosed; or I agree but cannot pay the balance due now and need an installment agreement; or I disagree. Or if you are hesitant to contact the IRS yourself you might want to seek out assistance from a professional tax preparer.
Fourth – RESPOND in a timely manner by the deadline to respond. If you call for assistance be sure to document who you spoke to. The representative will begin the call with their ID number. Write it down for your records as well as what advice they gave you. They are generally easy to work with, courteous and helpful when you call them.
DO NOT IGNORE IT! If you’ve received a letter or a notice be sure to respond if a response is requested. The IRS will not go away if they want a response. If you ignore their first correspondence, they will generally follow-up by eventually sending their communication by certified mail. If you continue to ignore their correspondence you won’t even know that they are tired of waiting for your response and that they intend to LEVY or SEIZE your bank accounts or property. They are after all, the IRS. Unfortunately, they can do that if you aren’t willing to work with them.
While no one wants to have a potential Tax Nightmare you should not pretend you were sleeping and just having a bad dream and didn’t realize you had unopened mail from the IRS.
So, here’s to only SWEET DREAMS and REFUNDS for everyone!
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I hope you’re enjoying Tax Facts on the Taxing Subject of Taxes!
Any U.S. tax advice contained in this electronic communication was not intended or written to be used, nor can be used, by any recipient of this communication for the purpose of avoiding penalties that might be imposed pursuant to the Internal Revenue Code or U.S. Treasury Regulations, or any other state or local law or regulation.
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