There are few experiences that can strike as much fear as receiving a notice from the IRS, but in most cases, a calm and methodical approach can allow most issues to be resolved efficiently. Here are several reasons why the IRS might reach out with a notice, and we have several suggestions on how to approach some of these situations.

Why Does the IRS Send Notices?

The IRS sends notices usually for one of the following reasons:

  1. Tax Owed: You have a tax balance that needs to be paid.
  2. Refund Amount Adjusted: The refund amount you were expecting has changed.
  3. Identity Verification: Extra steps are needed for you to prove your identity to the IRS.
  4. Corrected Return: Errors were found in your return, and it has been adjusted.
  5. Processing Delays: It’s taking longer than usual to process your return.
  6. Questions on Your Return: The IRS has inquiries or needs clarification about a filed return.

What to Do If You Receive an IRS Notice?

Read the Notice Carefully: Find out why you received this notice and what to do next. Pay attention closely to instructions and deadlines.

  • Read the notice and decide whether you agree with it.
  • Collect other records and documents if needed to support your position or your dispute.

 Please Note: If You Agree with the Notice

  • Balance Due: If you agree, submit the amount owed by the date listed to avoid additional fees and interest.

If You Disagree with the Notice:

  • Follow the instructions you are given to dispute the corrections the IRS says it made.
  • Provide supporting documentation.
  • Respond quickly, ideally before deadlines, to maintain your appeal rights.

IRS Audit Triggers: Hitting the Red Flags

Some acts or omissions can raise the chances of an IRS audit or its assessment. Watch out for these typical warning signs:

  1. Paper Filing: Hand-written tax returns can contain mistakes, like typos or miscalculations. Be sure that the handwriting is clear. To ensure accuracy, consider e-filing and using tax software, especially if you have a complex return.
  2. Claiming Refundable Credits: Make sure you qualify for any refundable credits claimed, since those will often come under scrutiny.
  3. Missing Income: The IRS matches your reported income with third-party data. Make sure to report every dollar of income to avoid red flags.
  4. Ownership of Digital Assets: Reporting taxes on cryptocurrency transactions can be tricky. Track all crypto transactions as you would for any other investment.
  5. Foreign Bank Accounts: If your foreign accounts add up to more than $10,000, you need to report them. Unknown accounts or unusual movements can be a red flag.

When In Doubt, Seek Help from The Pros

If you are unsure how to respond to an IRS notice or need assistance with tax matters, consider consulting a tax professional such as a CPA or tax lawyer or reaching out to us directly. Dealing with the IRS can be time-consuming and stressful. Additionally, there may be specific tax laws and nuances that taxpayers might not be aware of, which could have been beneficial. By being proactive and informed, you can tackle IRS notices with confidence while minimizing potential issues in your tax submissions.

Common IRS letters

Whether your return was meticulously prepared, or you’re seeking guidance on a new issue, our extensive experience in tax resolution allows us to effectively address a wide range of IRS inquiries.

To support those facing IRS inquiries, we’ve listed some of the most common IRS letters we’ve successfully helped clients address:

IRS Notice Number Description Topic
CP10 The IRS believes there was a miscalculation on your tax return that affected the amount of your refund you requested to be applied towards next year’s estimated tax payments. Change To Your Estimated Tax Credit Amount
CP11 The IRS has made changes to your return because they believe there’s a miscalculation. You owe money on your taxes as a result of these changes. Balance Due
CP14 You have an unpaid balance on your tax account. Balance Due
CP23 The IRS has made changes to your return because there is a discrepancy between the estimated tax payments or other payments reported on your return and the amounts the IRS has posted to your account. You have a balance due because of these changes. Balance Due
CP24 The IRS has made changes to your return because there is a difference between the estimated tax payments or other credits reported on your return and what they have on file, and this adjustment has resulted in a refund or an increase to your existing refund. Refund
CP49 Your expected tax refund (or overpayment) for a specific tax year has been fully or partially taken by the IRS to offset a past-due tax liability or other debt you owe. Overpayment
CP59 You are required to file a tax return for a specific tax year but the IRS has no record of receiving it. Filing
CP80 The IRS has received a payment or credit (e.g., through withholdings or estimated tax payments) to your tax account for a specific tax year, but they have not yet received your tax return for that same year. Filing
CP501 You have a balance due (money you owe the IRS) on one of your tax accounts. This is typically the first reminder notice you’ll receive from the IRS if you have an unpaid balance on your tax account. Balance Due
CP503 This is the second reminder notice you’ll receive for an unpaid balance. It means the IRS still hasn’t received payment or a response to the CP501 (and potentially prior notices). The balance due will likely be higher due to additional penalties and interest. Balance Due
CP504 You have an unpaid amount due on your account. If you do not pay the amount due immediately, the IRS intends to seize (levy) your state income tax refund and apply it to pay the amount you owe. Levy
CP565 The IRS has assigned your Individual Taxpayer Identification Number (ITIN). ITIN
Letter 5447C The IRS has received a federal income tax return filed under your SSN or ITIN, but they suspect it might be a fraudulent filing, or they need to verify your identity before processing the return. Identity Verification

 

 

Disclaimer: This information has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.