Getting mail from the Internal Revenue Service (IRS) does not always mean you’re in trouble. Apart from notifying you of tax issues you need to address, the IRS can send you a letter for other various reasons. The IRS may send you a letter to notify you of an unpaid balance, adjustments to your tax return or refund, delays to tax refunds, notice of audits or collection actions, or to verify your identity, among other possible reasons. That’s why you need to read the letter carefully so you can understand why they’re contacting you and how best to respond.
If you’re not sure what to do with an IRS letter, our experienced tax lawyers can help you. We can explain the letter or notice to you, identify how best to respond, and handle the entire process while keeping you informed. In case you’re facing a complex tax issue, Victory Tax Lawyers is the right legal team for you. We have saved our clients more than $85 million in taxes, and we are prepared to fight the IRS and win your case too. Get in touch for a free attorney consultation today.
In this blog, you’ll learn the various reasons the IRS might send you a letter, how to respond when you receive an IRS letter, what happens if you decide to ignore it, and how you can minimize getting IRS letters in the future.
Common Reasons the IRS Might Send You a Letter
You can get a letter from the IRS for a number of reasons. Sometimes, it can be to confirm or correct a detail, and other times, it can be to fix a tax-related issue. Let’s take a closer look at the most common reasons for receiving an IRS letter.
#1. You Have Unpaid Taxes
If you owe money to the IRS because you didn’t pay enough taxes for the year or missed some income on your report, you’re likely to receive a letter from the IRS. This kind of notice usually outlines how much you owe, what led to the tax debt, instructions on how to pay up, any important deadlines, and any additional interests or penalties. An example is the IRS Notice CP14.
#2. Adjustments to Your Tax Return
You may get an IRS letter (Notice CP11) if they notice a mistake on your federal tax returns. Such errors may be due to wrong calculations, missing income reported by your employer, or a wrong Social Security Number (SSN). Through the letter, the IRS will explain what the error is and how it affects your tax balance or refund, if you have any. The notice also tells you how to respond if you disagree. On the other hand, you don’t need to take any action if you agree with the corrections.
#3. Verification of Identity
Sometimes, the IRS may send you a letter (Letter CP5071) to verify your identity before they go ahead and process a tax return filed under your SSN or Individual Tax Identification Number (ITIN). The goal is to protect taxpayers against identity fraud. Such verification requests may ask you to provide proof of identity, answer questions about your tax history, complete some verification steps online, or call a provided verification phone number.
#4. Delays or Adjustments to Refunds
In a case where your refund is adjusted or delayed due to missing information, identity checks, or other possible reasons, the IRS will send you a letter (Notice CP12) to explain what happened. The letter will also let you know how they want you to respond before they send your refund. Most times, you can avoid further delays by responding as quickly as possible.
#5. Audit Notification
The IRS will notify you by mail (Letter 566) if your tax return is up for an audit. Although audits can also be random, most IRS audits come as a result of red flags on a taxpayer’s account, such as consistent missing information, unusually high deductions, or even a high income report. Most times, the audit letter specifies the documents to send, how to send them, and the deadline for the submission. If you don’t respond accordingly, you might face penalties or changes to your tax return.
#6. Confirmation of Requests or Changes
When you make a significant change or request with the IRS, they may send you a letter to confirm the change. Examples of such changes include updating your address or payment request. Most times, you’ll not be required to take any action. However, it’s still necessary to review the letter and be sure everything is correct. In case you notice any error, do not hesitate to contact the IRS.
#7. Notification of Collection Actions
If you accumulate unpaid taxes over time without active payment plans to offset the taxes owed, the IRS may seek to recover their tax money through collection actions such as tax liens or tax levies. But before they commence the action, they usually send a letter (Notice CP504) to inform you. If you get this kind of letter, it usually means you might have one more chance to set up a payment plan and avoid the action. And if you don’t act on time, they may go on with the collection actions and your tax situation becomes worse.
What to Do When You Get a Letter From the IRS
As mentioned earlier, not all IRS letters spell danger. So when you get one, stay calm and handle it properly. Here, we’ve put together some steps you should take to resolve whatever the issue is in no time.
- Read the Letter Carefully – Don’t just skim through the letter or assume you already know what it is about. Pay close attention to important details such as the tax year involved, the reason for the letter, any actions they’ve taken, what they require you to do, and any important deadlines.
- Compare the Letter with Your Tax Records – This is especially important if the notice or letter has to do with mismatches in tax amounts, personal details, or a corrected tax return. For instance, if the letter says you owe more than you think you owe, cross-check with your tax accounts and records. If you agree with the letter, you usually won’t have to take any action. But if you disagree, find out from the letter how you can take action or contact the IRS directly.
- Respond Only When Required – While some IRS letters require that you send some documents, verify something, or set up a payment, such as an installment agreement, some others are just to pass information. As such, you don’t need to take any action unless the letter specifically says so.
- Respond Within the Deadline – Most IRS letters specify the exact action you need to take and how long you have. Always look out for specified deadlines so you don’t act late. Remember, missing deadlines can further complicate your tax troubles, so act promptly to avoid issues and minimize additional interest.
- Contact a Tax Professional – If you don’t understand the IRS notice or you’re not sure how best to respond, don’t hesitate to reach out to Victory Tax Lawyers for help. Our experienced tax attorneys can help you understand what the letter is about, the right steps to take, and even represent you in tax court if necessary.
- Keep Record of Everything – Be sure you keep a copy of the IRS letters you receive, your responses, and any documents involved in the IRS correspondence. The references can come in handy when you need to follow up on an issue to provide evidence. The IRS recommends that you keep records for at least 3 years from the date you filed your federal tax returns.
- Watch Out for Scams – Note that the IRS does not contact taxpayers through texts, social media, or other unofficial means. The IRS sends letters ONLY through mail. Therefore, beware of tax scams or fraud who contact you through other means in the name of the IRS. You should pay even more attention when the notice has to do with making a payment or disclosing personal information.
When to Consult a Tax Lawyer
Not all IRS letters require professional help. For example, most ‘informational’ letters don’t require you to act, so you might not need a tax lawyer. However, if the tax issue is complicated or could lead to legal issues, it’s best to consult with a tax lawyer to guide you through the process and protect your rights in the process. You need to consult with a tax lawyer if your case falls into any of the following categories:
- You owe a large amount of money
- You don’t understand what the letter means
- You’re being audited and need tax audit representation.
- You got a Notice of Intent to Levy or Lien
- You have a case of tax fraud or evasion
- You want to appeal an IRS decision
- There’s identity theft or a tax scam
What Happens if You Ignore an IRS Letter?
Some taxpayers think they can avoid a tax issue or buy more time simply by avoiding the notice or letter. But that’s not true at all. Instead, ignoring an IRS letter or notice may lead to consequences that can turn a simple issue into a more complicated matter.
If you ignore an IRS letter, you can lose your right to challenge the decision if you disagree. Oftentimes, the IRS issues a deadline to appeal or dispute whatever they’re saying. If you ignore the letter and miss these deadlines, you may find it much more difficult to dispute when the IRS has made a final decision.
Note that late payment penalties and interests will continue to accumulate even if you decide to ignore a notice about your tax debts. In the long run, the total amount you owe can get way bigger than you would’ve paid if you had attended to the letter.
The IRS may also delay your refund or deny it completely if they mail you for more information and you fail to respond. That way, you may lose out on earned income credit or deductions you qualify for. Moreover, the IRS can start collection actions such as liens if they’ve tried to reach out to you, but you seem to ignore the letters.
Tips for Avoiding Future IRS Letters
Although you may not be able to avoid all IRS letters since some of them are random or just to pass information, you can still avoid many IRS letters that are initiated by issues you can easily prevent. Let’s give you some tips to minimize the letters the tax agency sends you in the future.
First, pay all your taxes as and when due. You’ll hardly get into trouble with the IRS if you’re prompt and accurate with your tax payments. If you can’t afford the entire tax amount, you can reach out to our experienced tax lawyers to help you find the most suitable tax relief option you can leverage. We can negotiate with the IRS on your behalf for an installment agreement, apply for an Offer in Compromise, or find an IRS forgiveness program you’re eligible for.
Confirm that all information on your tax return is accurate. This is because missing information, typos, or math errors can easily trigger an IRS letter. Secondly, make sure you report all your income. If the IRS finds any difference between your income reports and the ones on forms from your employers or clients, you’ll most likely get a letter.
In case you get any IRS notice, respond as quickly as possible. Prompt response helps resolve tax issues faster and prevents further complications that may attract more letters. Meanwhile, keep good records of all your tax-related documents, whether they’re receipts or adjustment notices.
Moreover, avoid filing too early or too late. When you file too early, you might miss some income that arrives later still within your filing period. On the other hand, when you file too late, you may attract penalty charges or interest due to missed deadlines. Therefore, make sure you have every detail you need before you file, but do so within the IRS deadline.
Ultimately, work with a tax professional if you want to stay away from IRS troubles as much as possible. In fact, if you’re in a complex tax situation, have back taxes, or own a business, working with a tax professional is more of a necessity than a luxury. You’ll need a tax professional to double-check and be sure there are no loose ends that might trigger tax issues for you.
Let a Tax Lawyer Handle Your IRS Tax Issues
You don’t have to panic every time you receive mail from the IRS. As we mentioned earlier, some of the letters are just for information and do not spell danger or require action. However, don’t leave any IRS letter to chance. Check what the letter is saying so you can address any pending issues as fast as possible. If you understand the letter or what to do next, consult with a tax professional immediately.
If you get into trouble with the IRS due to back taxes or need help resolving a tax issue, our group of skilled tax attorneys at Victory Tax Lawyers is always available to take on your case and help you get tax relief. Schedule a free consultation today and let our tax attorneys help you take control of your tax situation.
