You Got an IRS Notice — What To Do Next

Receiving an IRS notice can be scary. The good news is most notices and letters can be quickly resolved through the correct steps. Knowing what to expect and best practices for responding to the IRS will prepare you for the most common notices and more.

Read, respond, and pay

According to the IRS, there are three simple steps to receiving a notice.

Read

Read the notice or letter right away to avoid missing out on a quick and easy fix or any deadlines. Establish a clear understanding of what you’re required to do. The IRS tends to be very straightforward in their communications. They even provide a code in the top or bottom right corner, which you can use to find out more relevant information on their website.

Respond

Respond by following the instructions for resolution. Act quickly to avoid additional penalties or interest. A speedy reply will also preserve your right to appeal the issue if necessary.

Respond using whatever method is indicated on the letter. However, opt for filing documents digitally or calling the IRS whenever you can. It can take up to 30 days to receive a response via mail.

Pay

Pay any amount that is due using the IRS website. If you can’t pay everything, pay what you can and request an installment agreement for the remainder to reduce penalties. You may qualify for an offer in compromise, which settles your debt for less than you owe.

Avoid penalties and interest

If you do incur penalties after receiving an IRS notice, it’s best to pay as much as you can as soon as possible to keep fees from increasing. Interest owed to the IRS will compound daily until you’ve fully paid.

Even if you can’t afford to pay what taxes you owe, you should still file your return on time and request a payment plan. There are additional penalties for filing a late return, which increase after 60 days.

Penalties can be reduced if you prove reasonable cause for missed payments. Part of that proof is making a good faith payment to the IRS right away.

Know what to expect

These letters and notices are the most commonly received from the IRS.

• CP12: return corrected and overpayment detected. Compare the changes with your original tax return. Update your records or contact the IRS if you disagree.
• CP501 and CP502: balance due, first and second reminder. Pay online or via mail ASAP. Call the IRS if you disagree.
• CP2000: financial records don’t align with tax return. Fill out the response form and follow any instructions. Verify that your financial records are correct.
• CP71C: tax, penalty, or interest owed. Take steps toward payment and speak with a tax professional for help with debt resolution.
• CP523: intent to end installment agreement and seize assets after failure to pay. Pay what you owe before the termination date. Reach out to the IRS and a tax professional for assistance.
• LTR3172: federal tax lien filing and your right to a hearing. Your outstanding balance has led the IRS to file a Notice of Federal Tax Lien, meaning they have a right to your interests and assets. Fill out the notice of deficiency waiver (form 4089) and return it with payment. Or, appeal the notice.
• LTR3219b: intent to assess a tax deficiency. You will likely owe money once the IRS investigates the deficiency. Complete form 4089 and make a payment, or challenge the bill.

Other common topics include a change in your refund, a delay in processing your return, missing information, or verifying your identity.

Look out for fraud

The IRS will never contact you via email, telephone, or text message. If you receive any communication claiming to be the IRS asking for personal information, it is likely fraudulent. IRS notices are always sent via mail.

If you’re unsure whether a letter from the IRS is legitimate, search the code listed in the top or bottom right corner of the letter on the IRS website. If no results appear or you still suspect fraud, call 800-829-1040 or go to the IRS’s report phishing page for more information.

SME CPAs is here to help

For the best chance at a painless resolution, notify your tax professional of any IRS notices you receive. They can help you best proceed and fend off additional fees. SME CPAs not only assist with tax preparation, but any IRS compliance concerns our clients face. Connect with us today for fast and reliable guidance when you need it the most.