Don’t Panic, but Do Take Action

Receiving an envelope in the mail from the IRS may make your blood run cold, but there is no reason to panic. It is likely a simple matter that can be resolved quickly, and it may not even require any action on your part.

The vast majority of notices sent to taxpayers by the IRS are generated by computer software that is tracking down routine information. Perhaps a Social Security number has been improperly entered on a tax return, or a taxpayer has claimed a credit for which they did not qualify. In some cases, the IRS will inform a taxpayer that an additional amount of tax is due, or than an extra form must be submitted based on a deduction that was claimed.

What To Do?

While the first step is to not panic, the second step is to not ignore the notice. It is a notice from the IRS, after all, and if a response is required you must respond within the deadlines stated in the letter. Failure to do so can subject you to penalties or even a court appearance.

  • Read the notice carefully. Once you know what the IRS wants from you, if anything, it will be easier to understand what you need to do in order to respond appropriately.
  • Contact your tax preparer, who will understand what the notice is about and will help you respond appropriately. In most cases, these are matters that can be handled quickly.
  • In some cases, an IRS notice simply informs taxpayers about an action the IRS has already taken, such as assessing additional tax. The letter states that you need not respond if you agree with the action, but if you disagree it provides detailed instructions as to how to respond. Most responses must be made within 30 to 90 days, depending on the issue.
  • Be sure to read the instructions carefully with regard to responding, including the deadlines and the address to which a response must be sent. If you send it to the wrong place, you will be treated as if you did not respond, and penalties may be assessed.

In some cases, IRS tax notices are not stated clearly or are difficult to understand. If you receive one of these, your tax advisor can communicate with the IRS on your behalf to get a clear interpretation of the problem and the solution. For this to happen, your tax advisor will ask you to sign a limited power of attorney authorizing them to communicate with the IRS on your behalf.

If you encounter difficulty in dealing with the IRS as you try to resolve a tax notice, you may contact the Taxpayer Advocate’s office. The Taxpayer Advocate is a department within the IRS which is empowered to advocate for individual taxpayers and to act as a mediator in taxpayer disputes with the IRS.

State taxing authorities also send tax notices, though less frequently than the IRS does. The process of responding to a state tax notice is the same as that for the IRS – don’t panic, do read the notice and respond appropriately within the stated deadlines.

If you have received an IRS or state tax notice, contact your Adams Brown advisor.