Tax Tips
An envelope from the IRS raises the pulse of even the most organised filer. Almost all of them are routine, most are answerable with one letter, and a good number are simply wrong. Here is the order to do things in.
1. Open it, and read the notice number
Top right corner, usually beginning CP or LT. That code tells you exactly what kind of notice it is, and the IRS publishes a plain description of each one. A CP2000 is a proposed change from matching third-party documents. A CP14 is a balance due. They are very different problems.
2. Note the deadline
Most notices give 30 days to respond; a statutory notice of deficiency gives 90 and is a hard legal deadline that cannot be extended. Write the date on the envelope and put it in your calendar before you do anything else. Missing the window is what turns a small problem into a large one.
3. Do not pay just to make it stop
A proposed change is a proposal. Paying it is agreement. We routinely see notices proposing tax on the gross proceeds of a stock sale because the broker reported proceeds and the return omitted the basis — the actual tax owed is a fraction of what the letter says, sometimes nothing.
4. Compare the notice against your return
Line up the item the IRS is questioning with your own copy of the return. Three outcomes:
- They are right. Agree, pay or arrange to pay, and move on.
- They are partly right. Agree with part, dispute the rest in writing.
- They are wrong. Respond with the documents that show it.
5. Respond in writing, with copies
Answer the specific question asked. Attach copies — never originals — of the supporting documents. Include the notice number and your identifying details on every page. Send it by a method that produces proof of delivery, and keep the proof.
6. Expect it to take time
Correspondence processing is slow, and follow-up notices sometimes cross your reply in the post. Do not panic at a second letter that ignores your first. Keep your proof of mailing and keep to the deadlines.
7. Know when to hand it over
Call a professional if the notice proposes a large change, involves a year you cannot document, mentions examination or appeals, or threatens a lien or levy. Enrolled agents, CPAs and attorneys can represent you before the IRS with a signed authorisation, and you never have to speak to the agency yourself.
If we prepared the return
Forward the notice and stop worrying about it. Audit support is included on every return we file — we review it, draft the response and deal with the examiner on your behalf.
Want this reviewed against your own return?
Bring last year’s return to a consultation and we will tell you, plainly, whether anything on this page applies to you.
