How to Handle IRS Notices with Confidence
By Mahoney
Setting the Stage
Many taxpayers are familiar with the inevitable feeling of dread when opening their mailbox to a letter from the IRS. Questions like, “How much more do I owe?” or “Did I do something wrong?” can trigger waves of panic – and understandably so. IRS notices, or IRS letters, are rarely a cause for celebration.
Responding to Notices
Most IRS notices can be addressed by a three-step process.
- Review the notice carefully and send a copy to your tax advisor. Most notices set a deadline for response that begins on the date of the notice, so it’s important to act promptly.
- Verify the proposed changes. Many IRS noticed are generated automatically and may contain errors. Don’t pay the proposed amount until you’ve confirmed that the changes are accurate.
- Determine whether the notice is correct and respond accordingly.
- If you believe the notice is correct, pay the amount they are proposing and keep a copy of the notice in your personal records.
- If the notice is incorrect, contact your tax advisor for help. Due to ongoing staffing challenges at the IRS, resolving incorrect notices can be difficult, so professional guidance is especially valuable.
Next, we’ll look at two of the most common IRS notices and how to address them. You can identify the type of notice by checking the upper right-hand corner of the first page.
Common Notice #1: CP14
A CP14 Notice is issued when the IRS believes you owe a tax balance that hasn’t been paid. Common causes include electronic withdrawal errors, paper check processing delays at the IRS, or simply forgetting to pay your balance due. Here’s how we would employ the aforementioned three-step process:
- Step 1: Review the notice and consult your tax advisor.
- Read the notice thoroughly and send a copy to your tax advisor. Try to determine what may have triggered it. Does the proposed amount match the balance due on your filed return, a quarterly estimated payment, or the withholding reported on one of your tax forms?
- Step 2: Verify your payment records.
- Check your bank statements to confirm whether the payment in question was actually withdrawn from your account.
- Step 3: Respond based on your findings.
- If you agree with the notice, pay the proposed amount and keep a copy for your records.
If the amount appears to be properly withdrawn or you suspect the IRS may have misplaced your check, work with your tax advisor to contact the IRS and resolve the issue.
Common Notice #2: CP2000
A CP2000 Notice is issued when the IRS believes a taxpayer underreported income on their tax return. This typically results from a mismatch between income reported by third parties (such as W-2s or 1099s) and what is reported on your return. Here’s how to navigate the situation using the three-step process:
- Step 1: Review the notice and consult your tax advisor.
- Read the notice carefully and send a copy to y our tax advisor. Compare the IRS’s proposed changes with your filed return. Can you identify which part of your return is in question? Which tax form does the notice reference?
- Step 2: Cross-check the relevant tax forms.
- For example, if the notice refers to wage income or withholding reported on a Form W-2, verify that your return includes the correct amounts from that form. Do the same for any 1099s or other documents mentioned.
- Step 3: Respond based on your findings.
- If you agree with the proposed changes, pay the proposed amount and keep a copy of the notice for your records.
- If your return appears to match your tax documents, work with your tax advisor to contact the IRS and resolve the discrepancy.
Key Takeaways
Receiving a notice from the IRS can be unsettling – even when you know what steps to take. Fortunately, many notices are straightforward to resolve with the right guidance. If you receive a notice and aren’t sure how to proceed, your Mahoney tax advisor is here to help. We’ll work with you to interpret the notice, determine the appropriate response, and ensure everything is handled correctly – so you can move forward with confidence and peace of mind. And if filing time ever feels rushed, requesting a tax filing extension can help reduce errors and prevent issues in the future – learn more about how extensions work.
Tyler Sauve, CPA | Manager, Tax Solutions Team
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