After an overwhelming tax season, you get the mail and find a tax notice from the IRS (cue scary music!). Perhaps it states you owe an additional amount in federal taxes. Maybe you paid your taxes, but were late – and now there are penalty and interest charges.
Perhaps you have unfiled returns. Perhaps the notices contain a payment reminder, or a note about an outstanding balance. Maybe you received an undeserved refund. Maybe it’s a notice of intent to seize (levy) your property, or intent to seize assets.
Maybe the IRS has decided to audit your business. Whatever it is, it’s usually very unpleasant.
What should you do if you receive an IRS tax notice?
Don’t ignore it!
Your first instinct might be to shove the letter deep inside your closet and hope that the issue resolves itself. Perhaps you are so stressed by the letter that you procrastinate. Maybe you’re unable to pay the amount you owe, so you figure you might as well do nothing.
There is nothing worse than ignoring the letter!!! No matter how unpleasant it is, dealing with it is of upmost importance, as the consequences of delinquent taxes or missed filings only get worse with time.
The IRS calculates additional interest and penalty charges if they do not receive the amounts you owe. These can really start to add up, and the longer you wait the worse it will be.
The IRS can do some pretty scary things to you: seize your home, your bank account, your tax refund, and even revoke your passport.
In addition, if you show the IRS willingness to pay and cooperate, they will be more likely to abate penalties or work with you on an installment agreement.
Carefully read the tax notice
An IRS notice contains a lot of information, including:
- The address of the IRS office issuing the notice and their phone number
- The date the letter was issued
- The tax year the notice pertains to
- Taxpayer name and address
- Purpose of the notice, or the tax issue it pertains to
- Amount owed, if applicable
- The tax return or document that need to be filed, if applicable
- Instructions on what to do if you agree with the letter
- What to do if you disagree with the letter
- Deadlines for appeals, responses, further action or making payments
- At times, the name of the IRS agent issuing the notice
- Some taxpayers receive automated notices. Therefore, the letter might only contain an automated reminder to make a payment. (Though recently the IRS announced they will not be sending more automated notices for certain categories).
All this information is very important – make sure to read and inspect the entire letter. You must understand it (or hire a professional to help you with the notice), decide on a plan of action, and follow the specific instructions enclosed.
Assess whether the notice or letter is factually correct
Double check that your name, address and other personal information on the notice are correct. Every year, there are instances of the IRS sending erroneous notices, or letters and notices containing incorrect information.
If you’re sure you always paid taxes on time, and have filed your tax return on time, but the notice shows you owing/delinquent, there might have been an error in the agency’s system.
Pull out your federal tax return and check your tax records
Gather all your federal tax returns and financial documents from the tax year the notice pertains to, the original return you filed, and bank statements of any payments you made. Analyze the dates and numbers on the tax return and bank statements vs the tax notice. You may find that the notice was issued a day before you made a payment or filed a delinquent return.
Decide if you can handle the notice yourself
At times, taxpayers may be able to handle the tax notice themselves. If all you need to do is call the IRS office and explain that the payment the notice pertains to had already been made – or a tax return had already been filed – that’s something that probably does not require a tax professional. The agent you connect with will check the system and confirm whether they received the payment.
That being said, it’s definitely NOT easy to reach the IRS these days. The pandemic has a lot of agents working from home, and the agency is overwhelmed and understaffed, making them moths behind on processing paperwork. If you want to make a call yourself, be very patient and call at different times of the day until you get through. Know, however, the the wait time can even be 2+ hours.
You can also go online and check your taxpayer’s account.
Inform your current accountant or tax preparer
Your current accountant or tax preparer needs to know about the notice, so make sure to contact them right away. However, they might not have experience in dealing with these matters. If you want them to handle the notice, make sure they have handled similar notices with the IRS before. Determine whose help you’ll need to respond to the notice.
Obtain the help of experienced tax professionals
If the tax notice contains large interest and penalty charges, an intent to sieze property, or the amount you owe is too high for you to pay in the alotted time, you need to hire a professional.
Not everyone can obtain power of attorney to represent you with the IRS or respond to your notices & make calls on your behalf. The three tax professionals who CAN represent you are:
- A Certified Public Accountant (CPA)
- An Enrolled Agent (EA)
- A tax attorney
Working with a CPA might be your best bet – as they are licensed, qualified and deal with the IRS on an everyday basis. They’ll understand the laws and what can be done to help your situation. This will be money well spent.
Make sure to ask your CPA about their experience in handling tax notices similar to yours and probable outcomes of their help (installment plan? Offer in compromise? Penalty abatement?).
Always save paperwork and leave a paper trail
Whether you’re handling the situation on your own or using a CPA, make sure to save copies of any paperwork, along with dates.
When corresponding with the IRS use certified mail or a fax that shows date and time of any submitted documentation. Believe it or not, the IRS sometimes misplaces paperwork, and you may be required to show proof that you attempted contact.
If working with a tax professional, make sure to request that they share copies of any correspondence with the IRS – that way, even if you’re no longer working with the CPA, you have copies of critical documentation.
Act within the allowed timeframe
Your tax notice or letter will include information about deadlines for payments, filing, responding or appealing. Make sure to adhere to those deadlines to avoid further fees.
Use common sense and follow our guidelines:
- Don’t ignore the tax notice (or tax notices)
- Read and analyze it carefully
- Check the tax notice for mistakes
- Compile and review all the tax documents you received or submitted for the tax year in question
- Decide if you are capable of handling the notice yourself. If so, contact the office that issued the notice
- Better yet, hire a CPA, EA, or tax attorney to handle the IRS notice for you (especially if the stakes are high!!)
- Save all your paperwork and keep proof of sending correspondence to the agency (certified mail or fax confirmations. Yes, the IRS still uses faxes)
- Do not overlook deadlines for late payments, filing, replying or appealing to tax notices
- Pay attention to filing deadlines at the start of tax season
What are my options regarding my late tax payments?
There are a few things a good Las Vegas CPA can help you with regarding your late payments.
- An analysis of your situation, including all letters and notices, and recommendations for next steps
- Writing a response to the IRS regarding your tax letters or notices
- Getting the IRS to waive penalties and/or interest if it’s your first time owing
- Negotiating an installment plan that will help you pay off your debt
- Contacting with the agency on your behalf (tax practitioners have a separate phone line they use to call the IRS)
- Securing an offer in compromise if your situation does not allow you to pay your tax bill
- A CPA can help you request your tax transcripts from the IRS
- Offering advice so that your next tax season is a lot less stressful – such as making larger quarterly estimated tax payments or increasing your withholdings so you do not owe
- Calculating your year-end tax projections so you know in advance exactly where you stand – and whether to expect a refund.
Are there any institutions that help taxpayers facing problems with the IRS?
Taxpayers who have found themselves in trouble with the Internal Revenue Service but have low income, can use the Low Income Taxpayer Clinics (LITSs).
According to the IRS website: “Low Income Taxpayer Clinics (LITCs) represent low-income taxpayers before the Internal Revenue Service, assist taxpayers in audits, appeals and collection disputes, and can help taxpayers respond to IRS notices and to correct account problems. If you are a low-income taxpayer who cannot afford professional tax assistance or if you speak English as a second language (ESL) and need help understanding your taxpayer rights and responsibilities, you may qualify for help from an LITC that provides assistance for free or for a nominal charge”.
To find out more, follow this IRS link: https://www.irs.gov/newsroom/what-if-i-need-legal-representation-to-help-with-my-tax-problem-but-cant-afford-it