It can be common for the IRS to send out tax notices to taxpayers if they are requesting additional information, or if any adjustments are required on the tax return. The letter will provide clear, simple instructions on what to do next.
The following tips can help your clients know what to do, and how to respond, after receiving a notice or letter from the IRS.
Tip #1: Stay Calm
Although it can be alarming to receive a letter or notice from the IRS, tell your clients to try not to panic. For example, more than 1 million letters are sent to taxpayers each year because they fail to sign their returns. If your clients receive an IRS notice, it will typically cover a very specific issue about their account or tax return. Notices may require payment, notify them of changes to their account or ask them to provide more information. Sometimes, the IRS will end up owing them money, too.
Many of these letters require a simple response and offer specific instructions on what they need to do to satisfy the inquiry. With your help, they can mostly likely handle the review via mail and won’t necessarily have to visit an office or call an IRS representative.
Tip #2: Understand Why Your Clients has Been Contacted
Taxpayers are typically selected through one or more of the following:
- They were selected randomly based on statistical data.
- There is a discrepancy between the source documents (W-2 or 1099, for example) the IRS receives from the provider and what is reported on the tax return. This could identify unreported income from another source, such as a company your clients may not be familiar with or income reported on an earlier return.
- The IRS questions the accuracy of taxpayer returns. Clients may receive a correction notice from the IRS with a request for more money. If so, they will be asked to sign and date the notice, and send in their payment.
Note the “CP-90 Final Notice of Intent to Levy and Notice of Your Right to a Hearing” is the only notice that permits the IRS to do anything. After the final notice, the IRS must wait 30 days before taking action. During the 30-day window, you can help your clients file a request for a meeting with an IRS appeals officer or collection due process.
Tip #3: Review Your Notice
Tell your clients to review the notice to see what adjustments were made. Did they forget to include interest from one of their savings accounts? Did the IRS disallow a dependency exemption because their child’s Social Security number was transposed? If it is determined that the IRS was correct in making the adjustment, then they don’t have to reply unless a payment is due or the notice directs otherwise.
Tip #4: Do the Calculations
Math mistakes can be made by you, your clients or the IRS, so it’s best to recheck the calculations. According to the Government Accounting Office, many IRS notices are “incorrect, unresponsive or incomplete.” The good news is that math errors rarely lead to a full-blown audit.
Tip #5: How to Respond
Most of your correspondence with the IRS can be done by mail, but you or your clients may want to call an agent if there are questions. Use the telephone number in the upper right hand corner of the notice, and have the tax return and the notice handy to provide information to the agent.
When responding to the IRS, it’s best to send the IRS a printout of the computations, along with any relevant explanation and documentation. Responses should be clear and concise, and request additional information if the request is unclear. Mail the reply with the bottom tear-off portion of the IRS letter to the address shown in the upper left-hand corner of the notice; allow at least 30 days for a response.
Be sure your clients respond on time, usually within 60 days, or the IRS may put a lien on their property, serve a penalty or take unpleasant action. If your clients end up owing a lot of money, the IRS will usually allow them to pay the money over time. And, don’t forget about state returns; if your clients respond to any federal letters, they may have to change the information on those tax returns as well.
Tip #6: Keep Copies of Records
Keeping copies of tax records, including tax returns, source documents, paycheck stubs and cancelled checks, is always good practice. Also, remember to tell your clients to keep all correspondence with the IRS. When dealing with IRS professionals over the phone, be sure to take down their ID numbers, names, the time at which you or your clients spoke to them, and specific points the IRS may have covered.
One last point. Remember, the IRS sends correspondence through the mail, so educate your clients to not click on information via email, or click links in emails pretending to be from the IRS.
Hopefully, we have provided you and your clients with some useful tips about what to do if they receive a notice from the IRS.
Editor’s Note: For more information, check out other articles in Mike D’Avolio’s series on audits.