How to Handle an IRS Notice

There are several different reasons the IRS might send you a letter of notice. They send them to millions of people each year. When the IRS  issues you a notice, you can respond in a number of different ways depending on the type of notice you receive.

Late Filing Notices

You will get a notice from the IRS to inquire why you have not filed an income tax return for at least a year. In reference to the tax year in question, you will have to choose from the short list of answers that are provided such as “I am not required to file for this year because I did not earn enough income.” The inquiry will end if the answer you provide is sufficient. The IRS may arrange a “Substitute For Return” (SFR) form from information provided by third party sources like your Form W-2 (wages) and Form 1099(interest, dividends, rents, royalties, and similar compensation) in the case that you haven’t filed a tax return for a number years.

NOTE: According to the rules set by the IRS, a “married filing joint” filing status or itemized deductions are not allowed under an SFR and the credits and exclusions that you are entitled to receive will likely be omitted. To ensure you get your optimum tax refund and can claim those tax breaks you should file your own, correct tax return.

Along with a proposal of your tax assessment, you will get a Notice of Deficiency CP3219N from the IRS. Following this, you will have the option to either file your overdue tax return or file a petition in Tax Court within 90 days. If you disregard both options, the IRS will go ahead with the assessment of the proposed tax and this will trigger the collection process.

Allowing too much time pass by without responding to these notices will result in the IRS possibly collecting a lot more money from you than you are legally obliged to pay. If you file a correct tax return, you can avoid this hassle and extra expense. Moreover, you must file a tax refund within three years of the return due date to receive your money if your tax refund is due. A thing to be aware of is that, depending on particular circumstances, the statute of limitations can vary. Those circumstances can include whether or not the taxpayer has filed a request for an extension of time to file in a timely manner, with there rarely being an extension of time allowed to pay, when the IRS last credited a payment to the taxpayer’s account and many others. Hence, if you need more time to prepare your return, a tax extension request is absolutely necessary.

Overdue Payment Notices

Demand for payment is another kind of notice often issued by the IRS. Usually, this occurs in the case of a tax return being filed without full payment of the due balance, or due to an outstanding balance from a prior year’s return. Another reason for receiving an overdue notice would be if the IRS realized that a return was incomplete or filed incorrectly; documents could be missing or some information you provided was incorrect. 

If the IRS finds that you did not declare $300 of dividends from a mutual fund, they may reevaluate the tax you owed for any given year. A proposed tax assessment will be delivered to you by the IRS in such a case. The notice must be meticulously revised by you and a response sent as to its correctness, whether it is entirely, or partially correct, or indeed, totally incorrect. After processing your feedback the IRS will issue another letter to you in regards to whether it agrees to it or not. Letters are sent back and forth between you and the IRS until the issue is finally resolved.  

Hiring a tax attorney or Certified Public Accountant (CPA) can be useful at this step to help articulate your interests although you are advised to choose a representative with ample experience and the right accreditation to back your concern. If the IRS sends your case to the Department of Justice and enforces a Federal Tax Lien, for example by foreclosing your home, hiring a professional who can protect your interests is absolutely necessary.

How to Handle an IRS Tax Notice

Upon receiving a notice from the IRS, your first task is to understand the nature of the inquiry and the stated deadline for a response. In many cases, you can get more time to respond to the notice or even resolve the issue by calling the number provided on the notice.

Whatever you do, do not ignore a letter from the IRS. Contacting the Taxpayer Advocate Service (TAS) is suggested if you are not able to resolve the issue yourself. TAS is a useful resource as it specializes in helping taxpayers having issues with the system, especially those who have not been able to resolve their tax issues in the usual way.

Every state in the U.S. consists of at least one Local Taxpayer Advocate who has no links to the IRS and reports directly to the National Taxpayer Advocate. 1-877-777-4778 is the number to call if you want to find out whether TAS can be of assistance to you.

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