The Dos and Don'ts of tax notices

Last week marked the close of another filing tax season for most Americans. Thousands of accountants whooped a shout of joy, papers were tossed in the air, and throngs of professionals ran out of their office buildings finally seeing the sun after being horded up in their offices all tax season. Those with tax refunds went on a shopping spree and those who had to pay - well suck it up; either you made way more money than you thought or you were a poor planner.

Whether you filed yourself or had a professional file for you - how confident are you that you did it right? Did you have that uneasy feeling in the pit of your stomach questioning if you answered all the questions and input all the data correctly right before you hit the final submit button? If you had a tax practitioner file for you, did you answer all their questions and provide them with all your information? Or are you one of those people who dare the IRS to catch them if it is wrong?

The IRS and state taxing authorities send millions of notices out each year. But did you know that those notices are not always right. The best course of action may not be blindly paying whatever amount is on the notice.

Below are some types of notices the IRS sends out:

-Balance due.

-You are due a larger or smaller refund.

-There is a question about your tax return.

-The IRS needs to verify your identity.

-The IRS needs additional information.

-The IRS changed your return.

-The IRS is notifying you of a delay in processing your return.

The most common IRS notice is the CP2000 notice. Your employer, brokerage houses, banks, casinos, certain customers, colleges, and credit card companies all are required to report certain tax information to the IRS. The IRS then uses their computer software to match up total income, withholdings, and deductions per the forms W-2, 1099 series, and 1098 series provided them to the amount you reported on your tax return. If they don't match you get an automatic CP2000 notice.

So if you didn't input a 1099 you received, accidently forgot to provide your tax provider with a 1099, or if you received a late corrected 1099 that is probably why you are getting a CP2000 notice. It is insane but the IRS has even sent out a notice for income underreported by $1. So make sure you double check your totals.

Another common error is if you incorrectly reported when or how much you paid for estimated tax payments. Chances are if you received an IRS notice or corrected something on your federal return your state isn't far behind in sending their own notice.

What steps should you take?

Don't panic! Take a deep breath.

Read. It is very important to read the notice carefully to ascertain if the IRS is making a change, if they need more information, or if you need to take out your checkbook. If you don't know what the notice number or code is, go to www.IRS.gov, and search for your notice number. The IRS website is very helpful and useful so we highly recommend you go there first.

Determine if the notice is accurate. Compare the information provided in the notice or letter to the information in your originally filed return. If you used a tax professional, contact them and provide them a complete copy of the notice. They can have some very helpful guidance as to why you received one. If it is their error typically they will correct it for free.

Respond. If your notice or letter requires a response by a specific date make sure you comply on time. This will help minimize additional interest and penalty charges and preserve your appeal rights if you don't agree.

Pay. If after consulting with your tax professional, you truly owe the amount, pay as much as you can, even if you can't pay the full amount you owe. You can pay online or apply for an online payment agreement or offer in compromise with the IRS. It is highly recommended that you pay online as the fees are substantially less.

Keep a copy of your notice or letter. It is important to keep a copy of all notices or letters with your tax records as you could be asked for this at a later date. Don't just think because the IRS sent it they will have a copy of it. It sometimes mysteriously can get lost in all that bureaucracy.

Contact the IRS. Notices have a contact phone number on the top right-hand corner of the notice or letter. Get yourself comfortable and maybe even get a snack, and prepare to wait on the phone until you can get a hold of an IRS agent to help you. Accounting firms typically have access to a practitioner priority telephone service with the IRS that generally provides shorter wait times. This is one advantage of hiring a professional to assist you in answering your notice or preparing your return. Make sure to jot down their name, agent number, and if there is any additional information so if you need to call back you can try and get the same person so you don't have to start the whole process over again. If you have a written response or documents to provide the IRS, the preferred method is to fax them to the number on the notice. When you fax the items to the IRS make sure the notice is on the front instead of a cover letter so that the IRS agents know where the notice should go. If you decide to mail them your response send it to the address on the notice, make sure to mail it with tracking so that you have proof you mailed it timely or the IRS received it, and then wait 30 days for a response.

Lastly beware of fake IRS tax bill notices which appear to be CP2000 notices or phishing scams. The IRS will always mail you a notice first and will definitely not call you without prior contact. If you have concerns go to https://www.irs.gov/uac/ beware-of-fake-irs-tax-bill-notices.

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Susan Lebbon, CPA is a Principal at Mengel, Metzger, Barr & Co. LLP. She may be reached at SLebbon@mmb-co.com.

Published: Wed, Apr 26, 2017