Many people fear the IRS (Internal Revenue Service) and never want to hear from them. Regardless, at one point or another, most people can expect a note from the IRS at their doorstep. When you receive a letter from the IRS, it is best to check its legitimacy, read it carefully, and deal with it promptly. For almost all communication purposes, the IRS contacts taxpayers by mailing letters and notices to taxpayers.
Typically, communications with the IRS are quite straightforward. First, taxpayers send in their completed tax returns by the filing deadline. Next, the IRS sends any refund they may owe you within a few weeks. However, in some cases, taxpayers may receive an IRS letter that informs them that there has been a glitch in the process. In some circumstances, taxpayers will receive notices of balance due which can become intimidating as the IRS will start the collection process. In this article, our team at Victory Tax Lawyers provides key information about IRS letters and notices, including:
- what to do when you receive a letter;
- the reasons why taxpayers receive a letter;
- common IRS notices and letters;
- the potential consequences of ignoring the IRS; and
- how to ensure that letters are actually from the IRS and not a scam.
What to Do with a Letter From the IRS?
The first thing you should do if you receive a letter from the IRS is make sure that it is legitimate and sent from the official agency (more on this later). Once you have confirmed that it is a legitimate letter, read it carefully. The letter is likely about a specific issue related to your tax return or tax account. The letter may ask you to provide more information or notify you of a change or correction to your return. The letter’s content might also tell you that you owe money, explain why and how much you owe, and provide details on when and how to pay. If this is the case, one option is getting an installment agreement with the IRS with all the correct information.
Most notices from the IRS come with specific instructions on the following steps to take. You must read paying close attention to the details to understand what you should do next. There are times when you might not have to do anything. For instance, you might not have to do anything if the letter notifies you of a change or correction the IRS made to your tax return and you agree with the changes made.
However, if you do not agree with the changes, you can send a letter back explaining why you disagree. Make sure to include any information or documents in the letter that support your position. You should also include any tear-off portions of the notice. Please note that it will typically take at least thirty days for the IRS to respond. With the new Covid backlog, it is taking longer and longer for the IRS to respond to mail correspondence. A lot of notices will include a fax number for a reply. Typically the fax correspondence takes less time to process than a mailed counterpart.
One thing that to avoid is not opening the letter and completely ignoring it. Particularly if the letter requires action on your end, ignoring letters from the IRS can have serious consequences.
Why Are You Getting a Letter?
Given the intimidating reputation that the government agency has, seeing an IRS letter in your mail can elicit fear. Most taxpayers’ initial reaction is to think that the IRS is auditing them, especially because mail is also used for audit letters. In this sense, fear is not completely baseless..
However, not all letters from the IRS are a warning that they are auditing you—especially considering that only 4 out of 1,000 tax returns filed in 2021 were audited (though this figure could increase very soon). The letter could instead very likely be an innocent letter asking for more information. Several other reasons why the IRS might reach out to you include:
- You owe them money (not so innocent)
- Your refund is going to be larger or smaller than you thought it would be
- The agency has a question about the tax return you filed
- They need additional information about your tax return
- They need to verify your identity
- They made corrections or changes to your tax return
- They want to let you know about a delay in the processing of your return
List of Common IRS Notices and Letters
On most correspondence that the IRS mails, there is a letter (LTR) or notice (CP—Computer Program) number. This number located on the top or bottom right-hand corner. These numbers denote the reason for the correspondence and feature standardized text that the IRS uses for a particular issue. Some of the most common letter or notice numbers include:
- CP12: This notice tells taxpayers that the IRS made changes to correct a miscalculation on your tax return. If you agree with the changes described on the notice, there are no additional steps you need to take.
- LT5071C: This letter means that the IRS is requiring you to verify your identity because the agency has a suspicion that the return may be fraudulent and wants to confirm its legitimacy.
- CP14 Notice: If you have received this notice from the IRS, you owe money on unpaid taxes. This is commonly the first notice.
- CP501 Notice: This notice also relates to unpaid taxes and typically comes after an initial notice. These notices have become more rare lately.
- CP503: This is often the second (for businesses) or third (for individuals) notice that taxpayers receive stating that they still owe unpaid taxes. In this notice, the IRS also warns that the agency may take action if they do not receive a payment.
- CP504: This is the final balance due reminder—known as the “Notice of Intent to Levy.” At this point, the IRS can seize your state income tax refund to pay the amount you owe. The notice is extremely intimidating, and the IRS usually sends it via USPS Certified Mail.
- LT11: In this letter, the IRS states that they intend to seize your property or rights to property. This letter is extremely serious and if you fail to respond to this letter the IRS can begin to levy and garnish. This letter is typically accompanied by Form 12152—Request for a Collection Due Process Hearing. Using this form, a taxpayer can appeal the amount owed and ultimately end up going to tax court to settle the case.
- LT1058: Most people consider LT1058 an alternate version of LT11. Both are a final notice of intent to levy. The key difference is that while the IRS’ Automated Collection System (ACS) issues LT11, an IRS Revenue Officer (RO) issues LT1058.
- CP90: The IRS sends this notice to state that they intend to levy certain assets, which could include the seizure of vehicles, property, income, retirement benefits, and bank accounts. This mostly relates to a garnishment of Social Security Income.
- CP91: This notice is similar to CP90 in that it is also a notice to levy. However, this notice is specifically related to levying 15% of social security benefits for unpaid taxes.
- CP508C: Known as the “Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department”—this notice commonly gets sent out once the IRS deems your tax debt as seriously delinquent. After receiving this notice, the US Department of State will not renew a taxpayer’s passport or issue a new one. (Note: If you have a current passport, you can still use it and travel without any complications.)
- CP521: If you have entered into an installment agreement with the IRS, the agency will send this notice as a reminder that you have a payment due.
IRS Audit Letters
As described earlier, receiving an IRS audit letter is a rare occurrence. However, some people want to know how the IRS notifies taxpayers of an audit and the audit process. Just like all other forms of IRS correspondence, the IRS also mails audit letters. The agency will send an Initial Contact Letter that states that your tax return has been selected for an audit. The Initial Contact Letter can have many various notice or letter numbers. This depends on which aspect of your tax return is under audit. For example, CP75 is an Initial Contact Letter that tells a taxpayer they are being audited for the Earned Income Credit (EIC) they claimed. LTR 566D, on the other hand, is for an audit related to a taxpayer’s amended tax return. Initial Contact Letters have a response deadline of 30 days.
Another typical audit letter is a CP2000. This is a computer generated notice that basically says something was missed on a tax return. Usually, any income received by a taxpayer comes with a related form, such as a W-2, 1099, and so on. The taxpayer and the IRS should receive copies of these tax forms. A CP2000 is generated when the information the IRS has obtained does not match the tax return. In most cases, a 1099 from a retirement, or sale of a property is missed on a tax return. You should reply to the CP2000 to ensure the IRS is working the case and does not simply make an exaggerated assessment.
What Will Happen if You Ignore the IRS?
Simply stated, the longer you ignore your IRS notices and/or letters, the more serious the potential consequences become. On each letter or notice that the agency sends out, they include the amount of time that they require a response by (as well as any necessary steps to take). It is always wise to reply promptly in order to avoid receiving more serious notices, and ultimately, steer clear from levies, seizures, and other actions of that nature. If you lose or misplace the correspondence that the IRS mailed, you can create an online account with the IRS that allows you to retrieve mailed documents.
The IRS will not stop trying to reach a taxpayer if the taxpayer ignores the agency (as some people believe is the case with, for example, jury duty). Contrarily, the IRS will never shy away from issuing constant reminders and raising the stakes if a taxpayer continues to ignore their letters, notices, and correspondence. If you are too intimidated by IRS notices or simply need some guidance, Victory Tax Lawyers is here to help you. Our experienced tax lawyers go toe-to-toe with the IRS on a daily basis and are adept at leveraging the most effective methods to achieve the best results.
How Do You Know the Letter Is Valid?
Because most people have an instilled fear of the IRS, scammers have become skilled at using this fear to take advantage of unsuspecting taxpayers. To avoid this, it is absolutely essential to understand ways to know that an IRS letter is valid and legitimate. First and foremost, the IRS will never initiate correspondence or send a letter through email, text messages or social media channels. As mentioned previously, the IRS does all communication with taxpayers through official mail first. In recent years, however, scammers have become even more sly. Some scammers go the extra mile and send a letter or call on rare occasions, making it more challenging to recognize real from fake. Some of the tactics the IRS recommends you are aware of to recognize scammers from the government are:
- Angry demands for immediate payment
- Threats of arrest for non-payment
- Demands that you pay without allowing you to question or appeal the amount it claims you own
- Requiring you to use a specific payment method like a prepaid debit card without giving you other payment options. The real IRS will provide multiple options on how to pay your tax bill
- Asking you to phone in a credit or debit card number for payment
The IRS has also stated that more recently, fraudsters have also been modifying legitimate IRS letters and forms. To protect against this, the agency encourages comparing forms received in the mail to those on the IRS website.
Final Thoughts
Getting a notice from the IRS does not have to be reason enough to panic. By carefully reading the information included in the letter, you will know what the letter is about, if and when you need to respond by, and if necessary, what further steps you need to take. Additionally, never ignore any correspondence from the IRS, as this can actually lead to far more intimidating notices that can result in severe actions against you.
From dealing with simple and straightforward IRS letters and notices to helping clients navigate more serious and complicated IRS tax issues, Victory Tax Lawyers will stand up for you and help you resolve any tax matter. As the leading tax law firm in the nation, we have helped thousands of clients effectively resolve tax issues and get the outcome they desire against the IRS. Our team of experienced lawyers know every facet of tax law and can overcome the most challenging IRS obstacles. Don’t get punked by the IRS—call Victory Tax Lawyers today at (800) 883-8301.
Also Read: How to Deal With the IRS (Internal Revenue Service)