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.

 

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.