Imagine its a nice day and you take a peek in the mailbox and suddenly 3 initials change your day – IRS. All sorts of thoughts come to your mind. Just take a deep breath, it’s not as bad as it sounds. It’s easier than you think to deal with IRS tax notices.
IRS sends out many tax notices and most of these tax notices can be taken care of quickly and effortlessly. Maybe there’s a miscalculation, maybe you missed an item of income or expense, maybe you owe penalties and interest on late payments. You won’t know this until you open up the letter.
Before I tell you how to deal with IRS tax notices, let’s make one thing crystal clear. You should never disregard the notice.
Adjustment to Taxes
This can mean bad or good news depending on what IRS is adjusting. Unfortunately, most of the time, it’s an upward adjustment to your taxes. This could be due to intentional underreporting of income or an oversight during data entry.
You are receiving the notice because your employer or other entity such as a bank has provided information to the IRS that doesn’t tie to the tax return you filed. Computers talk to each other, if things don’t match, the tax return can get flagged.
If you agree with the adjustment and don’t owe any additional amount, keep the notice for your records. If you don’t agree with the adjustment, respond to it in a timely manner and attach copies of your records that reflect your position. Even if you don’t agree and there’s an amount due, please pay it first because if it turns out the IRS is right, you will end up paying an amount due plus interest on late payment.
If you paid estimated taxes during the year, this is another frequent notice that taxpayers can expect to get. It just means that there’s a mismatch between what you are reporting to the IRS and the what IRS has on file. This notice will also list if there’s an additional amount due or IRS is going to adjust the refund.
The best way to deal with this IRS tax notice is to look at your records and make sure that IRS is not missing any payments you made during the year. If it is, respond in a timely manner and submit proof of payment. If IRS is right, either pay the amount due or in the case of a reduced refund, do nothing.
IRS has a very handy guide for understanding tax notices, I recommend you take a look.