I’ve written a few times about the scams and scammers posing as the IRS and trying to trick taxpayers with their aggressive and threatening calls and emails. This time, I want to give you some tips for responding to the real deal – if you should happen to receive a legitimate letter via snail mail from the IRS.

Legitimate IRS letters

IRS only uses snail mail

If the IRS thinks it has found an issue with your tax return, it will contact you via snail mail, and only by this method, with a CP series IRS notice, usually CP2000. Typically the notice will include the amount the IRS believes you owe in taxes plus the amount of any penalty and interest. They also include an explanation of their examination process and the steps they want you to take to respond.

You could receive one of these IRS notices any time of year, not just following the tax season. And these notices are more common than you might think as the IRS has become more aggressive in its collection efforts in recent years; doing its part in closing the tax gap. Another factor contributing to a rise in the number of IRS notices is the increase in use of tax mills and do-it-yourself software for tax preparation. While most small business owners use a professional tax preparer, sometimes business owners fail to transition quickly enough from do-it-yourself when first starting out to professional tax preparation as their business grows and tax reporting becomes more complex.

The IRS examination process usually starts with a comparison of the information reported by the taxpayer versus what was reported by third parties so always make sure this matches up. Even a few small mistakes on one return can raise a red flag and result in an erroneous calculation of the taxpayer’s obligation.

So what should you do if you happen to receive a CP series IRS notice?
* First, don’t panic. Even the IRS makes mistakes and often these notices contain errors.
* Second, always respond by the 30 day deadline as failing to do so can have serious repercussions.
* Third, determine what type of notice you have received. The CP2000 series notices that deal with tax obligations are very different from other CP notices that deal with identify theft, audit correspondence, earned income credit and much more. If you have received a CP2000 notice it will include a proposed, and almost always unfavorable, change to your tax return. By giving you the notice, the IRS is giving you an opportunity to dispute the proposed change.

Sometimes the IRS will be correct. If your tax reporting is complex and especially if you are using the do-it-yourself method, it can be easy to miss income that should be reported, overstate deductions or make other common mistakes. The good news is that the IRS is often incorrect simply because its software isn’t sophisticated enough to pick up all the information on your attached schedules.

If you need help in responding to an IRS notice, or better yet, with your tax planning strategy upfront to avoid receiving an IRS notice, give me a call.

Randy Randy J. Elder, CPA, P.C.

With nearly three decades of professional experience in public accounting, Randy provides his tax and accounting expertise to new and small businesses in a casual and friendly environment. Before founding Randy J. Elder, CPA, P.C., he held various positions with an international accounting firm, and with regional and local CPA firms. Randy earned his Arizona CPA license in 1988, and holds a Bachelor of Science degree in Accountancy from Northern Arizona University.

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