If you receive a notice from the IRS, do not automatically assume it is correct and submit payment to make it go away. Because of the many recent tax law changes and so little time to implement the changes, the IRS can be wrong more often than you think. These IRS letters, called correspondent audits, need to be taken seriously, but not without undergoing a solid review.
These are the actions you should take if you receive a letter from the IRS:
Stay calm. Try not to over-react to the correspondence. Remember that the IRS sends out millions of these types of correspondence each year. The vast majority of them correct simple oversights or common filing errors.
Open the envelope! You would be surprised how often taxpayers are so alarmed by receiving a letter from the IRS that they cannot bear to open the envelope. If you fall into this category, try to remember that the first step in making the problem go away is to open the correspondence.
Conduct a careful review. Review the letter. Understand exactly what the IRS is telling you needs changed and determine whether or not you agree with their findings. The IRS rarely sends correspondence to correct an oversight in your favor, but it does happen.
Respond timely. The IRS will tell you what it believes you should do and within what time frame. Ignore this information at your own risk. Delays in responses could generate penalties and additional interest payments.
Get Help. You are not alone. Getting assistance from someone with tax expertise makes the process go much smoother. Wisdom Wealth Strategies regularly helps clients address tax-related issues, even if we don’t prepare your tax return. If addressing the issue yourself is daunting, please be in touch and we’ll help you resolve the problem.
Correct the IRS error. Once the problem is understood, a clearly written response with copies of documentation will cure most of these IRS correspondence errors. Often the error is due to the inability of the IRS computers to conduct a simple reporting match. Pointing out the information on your tax return might be all it takes to solve the problem.
Certified mail is your friend. Any responses to the IRS should be sent via certified mail or other means that clearly show you replied to their inquiry before the IRS’s deadline This will provide proof of your timely correspondence. Lost mail can lead to delays, penalties, and additional interest tacked on to your tax bill.
Don’t assume it will go away. Until receiving definitive confirmation that the problem has been resolved, you need to assume the IRS still thinks you owe money. If no correspondence confirming the correction is received, a written follow-up to the IRS will be required.
A word about fraud: According to the IRS website, the IRS does not:
- “Demand that people use a specific payment method, such as a prepaid debit card, gift card or wire transfer. The IRS will not ask for debit or credit card numbers over the phone. For people who owe taxes, make payments to the U.S. Treasury or review IRS.gov/payments for IRS online options.
- Demand immediate tax payment. Normal correspondence begins with a letter in the mail and taxpayers can appeal or question what they owe. All taxpayers are advised to know their rights as a taxpayer.
- Threaten to bring in local police, immigration officers or other law enforcement agencies to arrest people for not paying. The IRS also cannot revoke a license or immigration status. Threats like these are common tactics scam artists use to trick victims into believing their schemes.”
Before responding to any request that appears to come from the IRS, do your due diligence and ensure that you have indeed been contacted by the IRS. We frequently help clients verify the authenticity of requests from a variety of entities. If we can do the same for you, please ask.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.