Written by: Stephen Zogal, EA
Date: 6/25/24
Receiving a notice from the Internal Revenue Service (IRS) can be a cause for concern, but it doesn’t necessarily mean you’re in trouble. IRS tax notices are routine communications used to inform taxpayers about a variety of issues regarding their tax accounts. Understanding the nature of these notices and knowing how to respond can alleviate much of the stress associated with them. If you are not certain on the notice or the tax due, I strongly recommend contacting us for a free consultation to help guide you in the right direction at the very least.
Types of IRS Tax Notices
IRS tax notices come in many forms, each identified by a specific number in the top right corner. Here are some common types:
CP2000 Notice: This is one of the most common notices, indicating that the income or payment information the IRS has on file doesn’t match the information you reported on your tax return. It’s not a bill but a proposal for changes to your return.
CP501/CP502 Notices: These are reminders that you have an unpaid balance on your account. They detail the amount owed, including penalties and interest.
CP503 Notice: A follow-up to previous notices indicating that your tax payment is still overdue. This notice urges you to pay promptly to avoid further action.
CP504 Notice: A more urgent notice stating that the IRS intends to levy (seize) your state tax refund or other assets if you do not pay your balance.
Letter 1058 (LT11): This notice is a final warning before the IRS levies your wages, bank accounts, or other property. It gives you a last chance to arrange payment before the levy is enforced.
CP90/CP297 Notices: These are similar to the LT11 but are specifically about levying social security benefits or other federal payments.
CP3219A Notice: This notice, also known as a "Notice of Deficiency," indicates that the IRS is proposing a tax increase because of a discrepancy found in your return. You have 90 days to contest this by filing a petition with the Tax Court.
CP14 Notice: This is the first notice sent when you owe a balance on your taxes, outlining the amount due and instructions for payment.
What to Do When You Receive an IRS Notice
Read Carefully: Each notice has specific instructions. Understanding the issue at hand is the first step in addressing it properly.
Verify Information: Cross-check the notice with your tax records. Ensure the information matches your records and that any discrepancies are correctly noted.
Respond Promptly: Some notices require a response within a specific time frame. Delaying can result in additional penalties or actions like levies or liens.
Correct Errors: If the notice indicates an error on your return, you may need to file an amended return using Form 1040-X.
Pay What You Owe: If you agree with the notice, pay the amount due as soon as possible to avoid further interest and penalties. The notice will provide payment options. I would strongly recommend having a professional look at the notice first to agree with the assessment.
Dispute If Necessary: If you disagree with the notice, you have the right to appeal. Follow the instructions on the notice to begin the appeal process.
Seek Professional Help: Tax issues can be complex. If you’re unsure how to proceed, consider consulting with a tax professional such as a CPA, tax attorney, or enrolled agent.
Preventing Future Notices
To avoid receiving future IRS notices:
File Accurate Returns: Double-check your returns for errors and ensure all income and deductions are reported correctly.
Respond to IRS Correspondence: Address any issues raised by the IRS promptly to prevent escalation.
Keep Good Records: Maintain organized records of all income, deductions, and credits to support your tax returns.
Stay Informed: Keep up-to-date with tax laws and changes that may affect your returns.
Conclusion
IRS tax notices are a standard part of the tax administration process. While receiving one can be unsettling, they often provide an opportunity to correct mistakes or settle outstanding balances. By understanding the types of notices and following the appropriate steps, you can effectively manage your tax affairs and reduce the likelihood of future issues with the IRS.
If in doubt, don’t hesitate to seek our professional assistance to navigate the complexities of the tax system.
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