Every citizen living in the United States is obligated to pay their taxes. Since the process is infamously complex, it requires lots of attention to detail. At times, folks opt for hiring a professional who can do the heavy lifting for you. All tax returns need to be signed under penalties of perjury. This means every tax payer needs to double check the information they’ve put down before sending their tax papers to the IRS. More importantly, you need to be fully honest with the numbers they provide. But, what if you fail to do so and are one of those unlucky souls who receive a tax notice in the mail?
Receiving an IRS notice in the mail is enough to make you feel dread and give you that feeling of your stomach being tied in knots. However, it doesn’t have to be that way. Here we are going to give you a few tips on what’s the best way to respond to an IRS notice you receive in the mail. So, let’s get started.
Don’t Panic!
Don’t assume you know what’s written in the notice until you’ve opened the envelope and read its contents. Not panicking on the sight of a notice or letter from the IRS is important since not every letter or notice contains bad news. In fact, some notices can be dealt with quite easily without you having to jump through any hoops at all. Many people panic and contact their lawyer or accountant immediately upon receiving an IRS notice, only to find that there’s no need to take any action. That’s because many notices from the IRS merely contain the amount the IRS received, what they did with that money and what they have on file.
Learn More About the Notice
The IRS provides detailed information on all kinds of notices and bills that they send out. This information is available on the IRS website. To find out what your particular notice means all you have to do is type in the notice number into the search bar and get all the information you need regarding that notice. The number you are looking for will be at the top right-hand corner of the notice you receive.
The notice will also contain a contact number which you can use if you are looking to get more information from the IRS regarding your notice. If you suspect that the notice you have received is not from the IRS, then you can call the IRS at 1-800-829-1040 to report the notice.
Get Your Documents Straight
If the IRS notice is legit, and you’re having a bad feeling about its contents, then you will want to gather your documentation and records, just in case. If the notice you receive is requesting for proof of the relationship of a dependent, then you might have to present a copy of the birth certificate to the IRS as proof of their dependency. An IRS notice may challenge your deductions in business expense, which means the tax payer will have to gather up all their receipts, bills and invoices to present to the IRS in order to prove the deductions. Those who do not have the copy of their original tax returns, can request a transcript from the IRS.
Most Replies are Via Mail
Contrary to popular belief, most audits do not require having to sit opposite an IRS agent. Even if you have filed your tax return and have received a notice from the IRS, it may be because of an issue with Form 1099 or some other piece of information that you’ve provided which does not match the IRS records. In these cases, all you have to do is sign the form and mail it back to the IRS. You could also receive a notice asking for an explanation on why that information was incorrect. You can provide an explanation, if the IRS is right. If they are wrong, then it can be contested. In this case, you will need to act promptly.
Choose Your Battles
It is important for people to not fight every tax bill, especially if you know that the IRS is correct. If the notice seeks to claim a small amount of tax, there’s no need to put up a fight even if you are right. Furthermore, sometimes disputing a small matter can trigger other issues that might have been left alone by the IRS, so you will need to consider that too.
Answering a Notice of Proposed Deficiency
Even if the notice you receive is not a Notice of Proposed Deficiency from the IRS, it needs to be answered. An ‘Examination Report’ may follow the first notice you receive if you fail to respond to it. The Examination Report is also known as a ’30-day letter’ because it says that the recipient has 30 days to respond with an administrative protest. A protest, however, is not considered a letter.
Prepare Your Protest
It is crucial that your protest is timely once you receive an Examination Report from the IRS. It is important that you prepare, sign and mail the protest before the deadline expires. You also need to keep a copy of the protest as part of your record, along with proof of mailing, which will preferably be as certified mail and an IRS receipt. It is also important that you explain yourself thoroughly and attach any important documents if you think they are going to be helpful in getting your point across. As a rule of thumb, the protest you put up needs to analyze both the law and the facts. The IRS will review your protest and may agree or disagree with you, so how you frame your protest is going to make a huge difference in the success of your protest.
IRS Appeals Division
The IRS Appeals Division is a separate department of the IRS which has a mission to resolve IRS cases. While the Appeals Officer assigned to your case is going to be working for the IRS, the IRS Appeals Division at least tries to be impartial in their decisions. The process of working out the issues and compromising has been working out really well so far. While a tax lawyer will be qualified to handle your particular case, a qualified accountant can do the same. You can also just take the DIY route, and handle the situation yourself. It should be noted here that while it’s going to be cheaper to do it yourself, it is sometimes a less effective option. Many tax cases end up being resolved at Appeals, and the IRS usually assigns an Appeals Office that’s closest to you. But, that will depend on workload. Filers could sometimes be assigned a far-off Appeals Office. That said, IRS Appeals Officers are always happy to accept cases and go through your books and records to resolve a case.
IRS Notice of Deficiency
Those who fail to protest or resolve their case at Appeals are going to receive an IRS Notice of Deficiency, which you are going to receive as a certified mail. A Notice of Deficiency is also called a ‘90-day letter’ because it gives the recipient 90 days to respond. Due to past confusions on the deadline, the IRS is now required to clearly indicate the deadline for your response. It is never a good idea to write a protest for the Notice of Deficiency. Filers can only provide a single response after receiving a Notice of Deficiency and that’s by filing a Tax Court petition at the US Tax Court clerk’s office located in Washington, DC. In such cases, it’s best to hire a tax attorney. However, tax payers can represent themselves when the tax amount being disputed is less than $50,000. Whether you hire a tax attorney or decide to represent yourself, the US Tax Court will not hear your case unless it falls within the 90-day deadline.
Tax Court Judges Travel
All Tax Court clerks reside in Washington, D.C. but the 19 Tax Court judges are required to travel to federal courthouses all across the country. This means you can pick the city you want your case to be heard in when you are filing your Tax Court petition. There’s no jury in the Tax Court which makes the whole process more streamlined. You can also call witnesses and cases are presented based on stipulated records.
Get an Extension
For many types of notices, the IRS does grant an extension so that the person has a chance to respond appropriately. In some cases, the IRS will not be able to grant an extension. For instance, once you have received a Notice of Deficiency which is a 90-day letter, you need to file it in the Tax Court within the 90-day period. This date cannot be extended because it already has a rather long deadline. The good news is that most notices by the IRS are not very rigid. If you do request an extension from the IRS it will be granted to you, but it needs to be confirmed in writing. In fact, it would be wise to get everything you do with the IRS in writing.
Some Actions by the IRS Can Be Undone
As a rule of thumb, it is always advised to reply to the IRS notice within the given time frame. That being said, in some cases, it is also possible to sometimes undo this action taken by the IRS. For instance, if the IRS places a lien on your property or levies a bank account, it is possible for that action to be reversed. However, undoing an action carried out by the IRS is oftentimes an expensive process and will take the expertise of a professional.
Pay Up and Sue
If for some reason, you were unable to respond to the Notice of Deficiency in 90 days, all is not lost. While you will not be able to go to the Tax Court, you will be able to contest the taxes in the federal district court or at the Claims court. But, you will have to pay your taxes first, and then file a claim for a refund. If your request for a refund is not granted, then you can go ahead and sue for a refund.
Be Cautious
It is important to remember that there are many different types of tax notices that are sent out by the IRS. While we have been able to cover a few IRS notices here, there are many other types of notices that the IRS sends people that are also important. This includes summonses, liens and levies. The kind of response for each varies along with the procedure to come to a suitable conclusion about the issue. This is why it’s advised to never deal with the IRS notices alone and hire the help of a professional instead who has the proper experience in dealing with the IRS and tax notices. The bottom line is that you do not want to ignore a notice sent to you by the IRS.