IRS Letters
If you’ve received a letter from the IRS, it may be due to tax-related problems or an adjustment on one of your tax returns, but regardless of why the IRS is contacting you, it’s important to respond accordingly. That starts by verifying your own records and partnering with a reputable tax expert to work through the process.
What to Do if You Receive a Letter from the IRS
The IRS manages most of its communications through traditional mail, so if the agency is reaching to you for any reason, it will first do so through paper. If you receive communication through text or e-mail first, it’s important to make sure that it’s not a scam. Many scammers pretend to represent the IRS, so eliminate this as a possibility if you have any doubts.
If you’ve received a legitimate IRS letter, the first step is to not panic as you have time to respond. Here is what to do next:
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- Determine what type of notice you’ve received – The IRS may send out a letter for one of many reasons, and your response will need to be tailored to the notice you’ve received.
Some of the most common IRS letters include CP14 (Notice of taxes due and demand for payment), the CP2000 series (proposed changes by the IRS when your tax return doesn’t match the agency’s records), the CP12 series (a change to your tax refund due to a math error or extra withholding) and notices to audit (either Letter 566 for individuals or CP200 for self-employed individuals and business owners).
The IRS will also send out letters if identity theft is suspected or to inform the taxpayer that the agency intends to place a lien against your assets. The IRS will also send out reminders as payment or response deadlines approach.
- Gather your financial records – Once you know what kind of IRS letter you are dealing with, it is time to prepare your response. That is best managed with a professional’s help, but before you sit down with a tax expert, you’ll need to gather all relevant tax-related documentation. This includes past tax returns and other tax forms such as W-2s or 1099s. In general, the more documentation you can provide, the better, so even if you don’t have your tax documentation on hand, it’s still better to show up with secondary financial documents like invoices, bank statements and other financial statements. Your tax expert can use this documentation to determine whether you owe what the IRS claims you are liable for.
- Consult with a tax expert to explore your options – Although taxpayers can correspond with the IRS without an expert’s help, working with an enrolled agent or other representative is recommended. Some enrolled agents provide accounting services with expert representation, so they can review tax returns, W-2s, 1099s and any other tax information necessary to assess your situation.
An enrolled agent can also take charge of all correspondence with the agency, simplifying the process for taxpayers and ensuring their interests are represented.
- Determine whether to appeal or begin repayment – If you agree with the IRS’s determination, then you have a few options. Installation payment plans and offers-in-compromise are two examples. Your tax expert can identify the right repayment strategy and help minimize the impact of any penalties or interest.
If you disagree with the agency’s determination, you may have options to appeal. This is form and process-specific, and instructions to appeal are typically included with the form. You’ll need to file a formal protest with the IRS as part of your appeal, and that means including supporting documentation to build your case. A tax expert can assist with filing your protest and supporting it.
- Ensure that you don’t run into the same tax problems in the future – Millions of Americans deal with tax problems each year. Regardless of what’s behind your tax issues, you’ll be under additional IRS scrutiny going forward. That means putting additional controls and measures in place to avoid future problems with back taxes. If you’re partnered with an enrolled agent and accounting expert, they can optimize your future tax planning approach.
- Determine what type of notice you’ve received – The IRS may send out a letter for one of many reasons, and your response will need to be tailored to the notice you’ve received.
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Who to Partner with If You Receive a Letter from the IRS
If you have received a letter from the IRS, it’s important to respond clearly and thoroughly. To guarantee both, many taxpayers partner with an enrolled agent.
Enrolled agents are one of the few professionals qualified to correspond with the IRS on their client’s behalf. There are several benefits to partnering with an enrolled agent to help resolve your tax problems, including:
- Federally recognized and authorized – Enrolled agents must pass an IRS-administered exam to earn their credentials as a federally authorized agent. They’re the only non-IRS employees who can claim this, giving them additional influence and competency when corresponding with the agency.
- Unmatched depth of tax knowledge – Enrolled agents have uniquely deep knowledge of the IRS tax code and therefore can analyze tax problems and tax documentation better than anyone else. If your tax issues are complex or if you expect a lengthy appeal process, deep tax knowledge will be a major advantage for your case.
- Negotiation and advocacy abilities – Enrolled agents have expert negotiation and communication skills, as well as a deep history of case experience to draw from. This is all leveraged on behalf of clients during representation, which can be used to advocate for a reduced payment plan, an offer-in-compromise or penalty abatement (possibly reducing the amount of penalties).
- Reduced risk of process or communication errors – Enrolled agents are deeply familiar with the IRS’s deadlines and standards for correspondence. By partnering with a tax expert who is an enrolled agent, you’ll stay on top of those deadlines and avoid potentially costly errors.
- Federally recognized and authorized – Enrolled agents must pass an IRS-administered exam to earn their credentials as a federally authorized agent. They’re the only non-IRS employees who can claim this, giving them additional influence and competency when corresponding with the agency.
Many enrolled agents do more than maintain IRS correspondence or assist with tax problems. They may also provide tax preparation or tax planning services that can reduce the likelihood of future tax issues.
Have you received a letter from the IRS? Don’t ignore it and don’t panic as you likely have options you haven’t yet considered. An experienced enrolled agent can explain the full picture, what to expect, and has the knowledge to best position your case to the agency. Many enrolled agents can also assist with tax planning, ensuring you don’t encounter similar tax problems in the future.
