Responding to IRS Letters & Tax Notices

It is common for people to be nervous about receiving mail from the Internal Revenue Service.  I often meet taxpayers too scared to even open the envelope… who show up at my office with unopened tax notices.  It is ok to be nervous but IRS mail should be opened immediately as many of these notices are time-sensitive and may require a timely answer to preserve your legal rights.

This guide will help taxpayers understand their IRS notice or letter.

Alizio Law now provides IRS Notice & Account Monitoring

Is Letter From the IRS?

(Are you Sure?)

Unfortunately, there are criminals who impersonate the IRS in order to scam you.  To Illustrate a scammer may create a notice that looks like it is from the IRS but requests payment be made to the I.R.S. while a legitimate tax bill will always instruct payment be made to the “United States Treasury”.

It is easy for a tax professional to spot a fake correspondence but if you receive an unexpected IRS letter requesting payment we recommend calling the IRS at 1-800-829-1040 to verify.

Open & Read Carefully 

If the worst thing you can do is ignore letters from the IRS -> the best thing you can do is open and read letters from the IRS.

Does Notice Require a Response?

Not all correspondences with the IRS requires a response.  There are notices informational in nature that do not require a response. However, if tax notice requires a response, there will be a respond by date indicated on the notice.

An example of a notice not requiring a response would be a letter notifying the taxpayer that the IRS received information and this information is being processed.  NO RESPONSE NEEDED HERE!  

Pay Attention to Respond by Date

The bulk of tax notices are automatically computer-generated (i.e. not issued by humans) and if ignored without a timely response will automatically continue down the IRS assemble line and eventually end up in IRS Automated Collections System (“ACS”). It is essential to respond timely to notices in order to avoid automatically ending up in ACS.  Additionally, there are rights that may be lost if the taxpayer misses the respond by date or due date.

The Matching Notice (IRS Notice: CP2000)  

The IRS will mail notices to request information or propose changes to tax returns.  The taxpayer will receive a CP2000 notice informing the taxpayer that the IRS received information from third parties that don’t match the information reported on originally filed tax return.  A CP2000 notice is often referred to as a “matching notice” because information reported to the IRS does not “match” the information reported on the tax return.

To Illustrate:

A taxpayer with a bank account at TD Bank received interest of $1,233.54 during a calendar year.  At the end of the year, TD Bank will issue tax form 1099-INT to the taxpayer and the IRS.  The taxpayer subsequently forgets to give 1099-INT to his accountant and a tax return is prepared and filed without reporting the $1,233.54 of interest from TD Bank.  THIS HAPPENS ALL THE TIME!

The computer system at the IRS will detect that $1,233.54 of interest income was not reported on the tax return and propose an adjustment to return resulting in additional tax due.

The taxpayer will have a chance to review the proposed change(s) and either agree or disagree with the IRS.  The notice will provide a date in which to respond which is usually 30 days from the date of the notice.  The taxpayer may (1) agree with the IRS (2) disagree with the IRS (3) or agree in part.

Warning: If taxpayer ignores the notice any “proposed changes” specified in the notice will become assessments resulting in a Notice of Deficiency.  

New York State Tax Considerations

If you received a CP2000 matching notice and after reviewing the notice agree that you may have unintentionally omitted income from your tax return, you can simply consent to the proposed changes (no need to amend federal tax return). However, you will need to amend your state income tax return to include omitted income.

The Critical Notices 

Not all tax notices are created equal or said another way certain tax notices are more significant than other tax notices.  Any tax notice that creates and informs taxpayers of the rights to request a CDP hearing, petition tax court, or mailed certified mail are important notices.

Critical Notice: The 90 Day Letter (Statutory Notice of Deficiency)

The Notice of Deficiency also called a “90 Day Letter” or “Ticket to Tax Court” alerts a taxpayer of a proposed tax assessment and that the taxpayer has a right to petition tax court. The notice will include a deadline in which the taxpayer has to file a tax court petition (90 days).

Critical Notice: Final Notice of Intent to Levy

If you received a Final Notice of Intent to Levy you have unpaid federal taxes and ignored previous collection notices.  This notice informs the taxpayer that if immediate action is not taken concerning their outstanding tax liability, the IRS will take collection action against taxpayers’ property including wages, social security benefits, bank accounts, and other income. 

The Final Notice of Intent to Levy informs the taxpayer of the right to request a collection due process hearing.  We recommend taxpayers request a collection due process hearing to temporarily stop the IRS from collection actions.

Tax Attorney Consultation

If you received a tax notice do not panic and if you need assistance contact Alizio Law, PLLC at (212) 520-2906.