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You've Received a Notice from the IRS--Now What?

By Marcia Richards Suelzer, MA, JD | June 29, 2012

Few pieces of mail trigger feelings of fear and anxiety to the extent that an IRS Notice does. Most of us want to hide the envelope and pretend "this isn't happening." However appealing that strategy seems, it will only make matters far worse. Instead of cowering, take charge of the situation by knowing your rights and following the procedures required to remedy the problem.

The IRS sends millions of letters to taxpayers each year. In most cases, the matter can be resolved relatively easily. For example, you may have made a computational error and the IRS has adjusted your tax bill accordingly. In fact, some notices may even bring good news, such an additional refund due to a credit you failed to claim.

Each IRS letter and notice will include information regarding the specific problems that IRS found and will contain specific instructions for satisfying the inquiry.

Tip. Look in the upper right-hand corner to find your notice number. The IRS website,Understanding Your IRS Notice or Letter, provides a list of the most frequently issued notices and letters. Go to the website, locate your notice number and click on it to get additional information on how to resolve the issue.

Most notices adjust your tax return in some manner. If you receive such a notice, you should review the changes against the information you submitted on your return. If you agree with the IRS's change, there is usually no need to take further action--unless you owe additional money. If there is additional money owed, then you simply send the amount to the address stated. The notice will tell you what to do if you can't pay the amount in full.

If you do not agree with the proposed changes, then you must take action immediately! This is especially true if it is a "Notice of Tax Due and Demand for Payment" or any type of "Final Notice." If you ignore the notice, the IRS can:

  • file a Notice of Federal Tax Lien, which gives them a legal claim against your property;
  • service a Notice of Levy, which allows them to seize your propery (such as wages, bank accounts, car, or real estate); and
  • offset a refund to which you are entitled.

While you need to follow the instructions in your specific notice, generally you dispute the IRS's claims by sending them a written explanation that explains why you disagree. You should include copies of any documents and information that support your position. In most cases, you will also mail in a portion of the notice with your explanation and supporting information. The IRS should respond within 30 days and let you know whether they accept your position or continue to dispute it.

If the IRS does not accept your position, it will likely send you a Notice of Tax Due and Demand for Payment. Do not simply ignore this communication. Instead, you should request a Collection Due Process (CDP) hearing if you really believe you do not owe the taxes. This not only allows you an opportunity to prove your position, it also stops the IRS from putting liens on your assets or seizing them via levy. And, requesting a CDP gives you the option of appealing to Tax Court before the collection process can continue.

If you do owe the taxes, then you should work with the IRS agents to obtain an installment agreement, an offer in compromise or other forms of tax relief. While you do not need to be represented by a tax professional, if the amount at issue is significant, it may be advisable to have representation.

Warning. IRS collections work is a specialty practice area. It is important to hire someone who is familiar with the details of the procedural issues because often timing is absolutely critical for obtaining the best results for you.

However, avoid anyone who guarantees (especially via late-night TV ads) that you'll only need to pay "pennies on what you owe." That simply is not going to happen in most cases. However, having a professional on your side will help ensure that you get the best possible deal and, most importantly, enable you to focus on other matters while the IRS dispute is being resolved.

Related items:
Tax Appeals: Know and Defend Your Rights

Posted May 27, 2011.

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