What to Do When an IRS Notice Arrives

An envelope from the IRS is alarming in a way that few other letters are. Most of them should not be. The majority are automated, they are frequently wrong, and nearly all of them can be answered.

What they all have in common is a deadline. That is the part that matters.

Do not ignore it

The single most expensive response to an IRS notice is no response. Interest and penalties accrue, proposed adjustments become assessments by default, and the options available to you narrow considerably once a deadline passes. A notice answered on time is a conversation. A notice ignored becomes a bill.

Equally, do not pay it simply to make it go away. A notice is a proposal until it is agreed or assessed, and proposals are often wrong.

Find four things on the page

Every notice carries them, usually in the top right corner:

1. The notice number — a code like CP2000 or CP14. It tells you exactly what kind of letter this is, and there is public IRS documentation for each one.
2. The tax year it concerns, which is frequently not the year you just filed.
3. The deadline to respond, and whether that date is for responding or for paying.
4. The proposed amount, and whether it is a bill, a proposed change, or a request for information.

With those four you know what you are dealing with. Without them, nobody can help you.

Check it against your own return

Automated notices are generated by matching what third parties reported against what you filed. That process produces false positives routinely:

• A brokerage reports the gross proceeds of a sale, not the gain. The notice can therefore propose tax on the entire sale price when you may have made no profit at all.
• A form was issued twice, or issued to you for someone else’s income.
• Something was reported under the wrong tax year.
• Income was reported correctly but on a schedule the matching program did not read.

Pull the return for the year in question and compare it line by line against what the notice says was reported. Often the discrepancy explains itself in ten minutes.

Keep the paperwork

Keep the envelope, and note the date it arrived. Respond in writing, keep a copy of everything you send, and send anything significant by certified mail. If you speak to someone by phone, write down the date, the time and their badge number.

This sounds excessive until the moment the IRS has no record of a response you know you sent.

When to bring in a CPA

Handle it yourself if the notice is a simple arithmetic correction you agree with, or a request for a document you can readily produce.

Get help if the amount is significant, if the notice concerns a business return, if it proposes penalties beyond interest, if it mentions an examination or audit, or if you simply do not understand what is being asked. Get help immediately if the letter uses the words deficiency, levy or lien — those carry deadlines that eliminate options.

We handle audits and notices from the IRS as well as the FTB, EDD and CDTFA. If a letter has arrived and you are not sure what it means, call us — read us the notice number and we will tell you what it is.

This is general information, not advice about your situation. Every notice depends on the facts of the return behind it.