If you’ve ever opened your mailbox to find a letter from the IRS or a state tax agency, your first reaction may have been anxiety. But here’s the truth: not all tax notices are bad news. In fact, many are simply informational—confirming a change, requesting verification, or reminding you of a deadline.
The key is knowing how to read the notice, what steps to take, and when to get professional help. Below is a breakdown of what you need to know.
Why You Might Receive a Letter
Tax agencies send notices for a variety of reasons, including:
- To notify you of a discrepancy between your return and their records.
- To request missing documents, such as W-2s, 1099s, or expense details.
- To confirm changes made to your account or return.
- To inform you of a balance due or a refund adjustment.
- To conduct a random review or audit selection.
Understanding the purpose of the notice helps you decide your next step.
Step 1: Don’t Panic—Read Carefully
- Identify the issue. The notice will state why it was sent (ex: missing document, unpaid balance, identity verification).
- Check deadlines. Most letters require a response within 30 days—ignoring them can escalate penalties.
- Compare with your records. Match the notice with your filed tax return and supporting documents.
Step 2: Take the Right Action
- If you understand and agree: Follow the instructions to resolve the issue (such as making a payment).
- If you’re unsure: Contact your CPA or tax professional for an explanation before responding.
- If you disagree: Gather supporting documents and prepare a written response. Always send by certified mail to have proof of delivery.
Common Scenarios & What to Do
1. The IRS says you owe money.
- Verify the accuracy of the claim.
- If correct, pay in full to minimize penalties and interest.
- If you cannot pay in full, request a short-term extension, set up an installment plan, or explore an offer in compromise.
2. The notice is unclear.
- Don’t guess—call your tax professional.
- You can also contact the IRS/state directly using the official phone number listed on the notice (never search online—this avoids scam numbers).
3. The IRS made an error.
- Mistakes happen. Provide documentation (bank records, receipts, 1099s, etc.) in your response.
- Keep copies of all correspondence and send responses by certified mail.
4. The notice is about a small amount.
- Never ignore it. Even small balances can snowball into bigger problems, including liens, levies, or garnishments.
How to Avoid Future Notices
- File accurately: Work with a professional to minimize errors.
- Stay organized: Keep copies of tax returns, receipts, and financial records for at least 7 years.
- Report all income: Cross-check with 1099s, W-2s, and brokerage statements.
- Respond early: If you notice a mistake, amend your return before the IRS sends a notice.
Final Thought
A letter from the IRS or state doesn’t automatically mean trouble—it simply means attention is needed. The worst mistake you can make is ignoring it. With the right response (and professional guidance), most tax issues can be resolved smoothly.
Need expert help? Forward your notice to our office, and we’ll review it step-by-step to ensure you respond correctly, protect your finances, and avoid unnecessary penalties.
