By Receiving a letter from the IRS can feel like a ton of bricks struck your midsection, but barring rare exceptions, almost all correspondence with the IRS is manageable when you stay calm and respond in a timely manner. A notice or letter is, more often than not, the IRS asking for clarification or missing paperwork, or to offer you some payment options—not a warning you are getting in trouble.
Here’s how to read the IRS notice, avoid common mistakes, meet deadlines, and take the appropriate action that will protect your rights.
What Does an IRS Notice Mean?
An IRS notice is the formal communication from the IRS regarding an issue—e.g., proposed balance due, math error, identity confirmation, or a request for documents. Generally, the first page will indicate why the IRS reached out, what they believe is different, and what they want you to do next. You may want to read the letter in its entirety then match the notice number (upper right corner of page one) to the instructions in the notice.
Check out https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter for further reading.
If the IRS is proposing to change something you believe to be correct or are not in agreement with, you will generally have the opportunity to dispute that proposal to the IRS. Hold onto the envelope, any postage stamp or marking, and every page of the notice. Each of these details can matter when you are required to show you responded within the time limits.
Common Mistakes Taxpayers Make
It is easy to panic and jump on guessed or assumed ‘fixes’. Before you call or pay anything to the IRS, take a minute to gather facts, compare the numbers to your return, and come up with a more defined approach.
- Ignore the notice: Deadlines have a way of sneaking up on taxpayers, and interest or penalties can accrue during this process.
- Paying without confirming first: Compare line items to your filed return and any W-2s or 1099s.
- Calling the IRS without adequate preparation: Have the notice and the return, plus supporting documentation right in front of you.
- Mailing originals or not considering tracking information: Only mail copies, not originals, and use certified mail or upload through an IRS approved method.
- Missing the opportunity to contest a notice: Many Notices have a brief time period to contest the IRS position, and you don’t want that time to lapse.
How Long Do I Have to Respond?
Each notice will have a unique deadline or timeline; therefore, you will want to examine the initial paragraphs and headers to find the “Respond by” date. Notice deadlines typically are around 30 days, and a statutory “Notice of Deficiency” will generally provide around 90 days to petition the U.S. Tax Court. If after reading a notice documentation the timeline is unclear or you don’t know what to do next, a Raleigh NC tax attorney can help you read the notice, calculate the true deadline, and file a response to preserve a valuable alternative.
Options If I Can’t Pay IRS Right Away
Not being able to pay the IRS in full does not mean you simply ignore the notice. There are acceptable methods by which the IRS will provide you a structure to pay off your balance, while at the same time protecting on your credit. Review your budget, documentation of income, and expenses, and choose a method that is appropriate for your situation.
- Installment Agreement: You are able to enter into monthly payments that achievable under your cash flow. Automatic drafts can help reduce the risk of default.
- Offer in Compromise: If you cannot afford the full amount owed, you are able to settle with the IRS for less based on your ability to pay, equity in assets, and documentation of expenses.
- Penalty Abatement: If the IRS applies penalties for late filing or late payment, abatement options can relief penalties based on being a first-time abate or reasonable comfort based upon tax administered factors.
- Currently Not Collectible: If you cannot afford to pay any of your necessities, and your tax, it is possible the IRS will agree to a currently not collectible status after you disclose your financial information.
Whatever approach is chosen it is better to file any missing returns prior. Filing returns, staying compliant going forward makes the approval process much easier.
When to Seek Legal Help
Involve the professionals once your numbers don’t add up, you disagree with what was proposed in the notice, or if you have received audit or collection notice. A tax professional (see here for more info) can compile a response, acquire transcripts, and represent you in an audit, and will not delegate that responsibility with you. This can be even more important if you are dealing with a lien/levy rarer or appeal process.
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Raleigh, NC 27601
Asking for the legal assistance of an experienced attorney can also help much from your stressed situation to getting you onto a clear defensible plan, if you are trying to decide between a potential for payment plans, offer in compromise, and/or formal challenge altogether.
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