Financial Tip Article, August 2019
Ah, summer— ‘tis the season…and I’m not talking about Christmas, but the season for receiving IRS notices! The IRS (and the Franchise Tax Board too, for that matter) mails millions of letters to taxpayers for various reasons. By this time of year, the IRS computers have had a chance to match data reported by employers, pension providers, financial institutions, and other “third party” payers against information reported on tax returns. If there is a mismatch, guess what? The taxpayer receives a notice…and hearts race!
I know the feeling! Years ago, I made a typographical error in my daughter’s Social Security Number, and received a notice informing me that the IRS didn’t have a record of this dependent, and therefore I owed them a few thousand dollars in additional income taxes! Even though I had no doubt that my daughter existed, and that I was entitled to claim an exemption for her, I felt my heart skip a beat—I didn’t have a few thousand dollars sitting around. How could this be? After a few deep breaths, I read the notice more carefully, and then called the IRS number on the notice. I explained my error, and that was all there was to it! Whew!
As a result, when clients bring in tax notices that they’ve received, I understand their distress! Here are a few tips (most actually provided by the IRS!) on how to handle a tax notice, should you be a lucky recipient:
- Don’t panic! My personal and professional experience has shown that most notices can be resolved by simply responding.
- Do not ignore the letter! It is typical for a notice to address some kind of issue with your tax return. Generally, there will be instructions to follow, and possibly a deadline for a response.
- Respond in a timely manner. Sometimes, there may be additional taxes owed, and meeting the response deadline will help reduce penalties and interest charges.
- If the notice indicates a changed or “corrected” return, review the information carefully, and compare it with your original return. If you don’t understand the notice, bring it in to the office so we can review the information and the suggested changes—the IRS is not always correct!
- You will need to respond to a notice you don’t agree with. Typically, a letter should be mailed explaining why you disagree, backed up with information and documents for the IRS to consider. If you aren’t sure how to respond, we can help you by reviewing your notice, and drafting appropriate responses. Be sure you include your Name, Social Security Number, Notice Number and Tax Year on any correspondence.
- Always keep copies of any notices received, as well as a copy of any documentation you submit, with your tax records.
- The IRS will send letters and notices by The IRS will notcall you or demand payment in a certain way. Because correspondence is sent by mail to the address on record, it is a good idea to file IRS Form 8822-Change of Address if you have relocated between tax filings.
If you remember nothing else from this article, remember #1 and #2: Don’t panic, and don’t ignore the letter! For your peace of mind, it is a good practice to have us review any notice you receive; so that we can guide you, and help with a timely response.
Montgomery Taylor has worked hard to put together a team of tax accountants in Santa Rosa, Sonoma County to deal with IRS issues, and to maximize your deductions in order to get the best return for you. The company also offers customized investment strategies to help you achieve your financial goals. Contact us for a consultation today.