Checking the mail box each day often involves sifting through significant amounts of junk mail to locate anything important. Miss a couple days and the pile of mail grows quickly.
Your anxiety level can spike when you see a letter from the IRS. Try not to panic. While correspondence may relate to a tax return you can hardly remember, we will explain what you need to know before responding.
Why did you receive a letter?
You will need to open the letter and read it closely to find out exactly. Generally, notices are sent when there is a mismatch between what you reported on your tax return and information received from a third party (i.e. your employer or a business you worked with as a contractor).
The letter may ask for additional information or it could describe an error. For instance, a CP3219A Notice – also known as a Notice of Deficiency lets you know the error resulted in a larger tax bill. It will tell you how the amount was calculated and what you need to do.
Here is an example, someone you worked for erroneously entered income into the wrong box on your 1099 for work you did in 2013. While completing your 2014 tax return, you missed the mistake and treated the 1099 as if it was correct. The IRS computers catch the mismatch several years after you have filed and find you underpaid your taxes by $18,500. Interest has also been accruing.
Responding to the letter
In our scenario, the error leads to a significant tax liability. Because you cannot pay the amount requested, you should speak with a tax attorney first. Often it takes a professional to unravel exactly where the mistake happened and help fix it.
Do you disagree with the changes? You have the right to file a challenge. But the tax court cannot hear your case if you wait too long to file a petition in your case. An attorney can help you decide whether it is necessary to file an appeal with the tax court and ensure the timely filing of documents.
When you or your accountant made the mistake, the amount listed could be correct. A deficiency from several years ago could mean interest has been accruing and will continue until you deal with the problem. A payment plan or an Offer in Compromise may offer some relief and avoid a tax lien, levy or wage garnishment.