This article was originally published in O’Neil, Cannon, Hollman, DeJong & Laing s.c’s Tax and Wealth Advisor Blog and is published here with the author’s permission. Blog has been edited for publication on WisBar, with author approval.
Although tax season may end for many individuals after returns are filed on April 15, for others it may be just the beginning. Many people receive a notice from the IRS as they process returns. These communications from the IRS are common and aren’t necessarily a sign of trouble. If you receive a notice, read it carefully, address it promptly, and consider whether you should contact a lawyer.
Most notices from the IRS are regarding incomplete or incorrect information on taxpayer’s tax forms, but there are plenty of other reasons the agency might be contacting you. The IRS website notes that the IRS sends notices and letters to individuals because:
they are due money;
they owe money;
they need to provide additional information or clarify part of their tax return;
they need to verify their identity; or
their tax return has a processing delay.
Each notice or letter contains a lot of valuable information, so it is particularly important to read it carefully. Any communication you receive from the IRS will have a code on the right side at either the top or the bottom. The codes on notices begin with CP. The codes on letters begin with LTR. Here are some common notices the IRS sends out, identified by code.
The IRS sends taxpayers a CP2000 Notice when the information they have on file does not match the information provided on the tax return. There might need to be an adjustment to your tax forms.
For example, your employer originally sent you a W-2 with incorrect information. They later sent an amended W-2, but you used the incorrect W-2 when completing your taxes.
If the notice alerts you to a discrepancy in your tax filing, it will explain how the IRS determined the error. You can either agree and sign off on the proposed changes or explain why you disagree, including providing relevant documents. You typically will be given 30 days to respond.
If you fail to resolve the issue highlighted by a CP2000 Notice, the IRS sends a CP3219A Notice. Known as the Statutory Notice of Deficiency, this form gives you 90 days to reply. Like a CP2000 Notice, you can either agree or disagree with the changes when you respond.
Failure to reply to this notification can bar your ability to appeal and contest the issue in Tax Court.
When the IRS has not received your tax return, they will send a CP3219N Notice. You have 90 days to reply. If you believe you did not have to file a return but receive this notice, you should contact the IRS.
The IRS sends a CP501 Notice to remind taxpayers that they have 21 days to pay any outstanding tax. If you cannot pay what you still owe, you can see if you qualify for a payment plan.
CP501 notices are generally the first notice sent. If you do not reply within 15 days, the IRS will then send a CP503 notice. If you receive a CP503 notice but believe you have resolved the issue, you should contact the IRS for confirmation.
If you fail to respond to this notice, the IRS can levy interest and penalties as well as file a Notice of a Federal Tax Lien. Like other notices, you can disagree with the IRS’s calculations. You should be prepared to offer documentation to show their error.
A CP14 Notice closely relates to CP501. It lets you know that the IRS believes you underpaid the amount due on your taxes.
Similar to a CP501 Notice, failure to respond in the required time period can result in additional penalties and accruing interest.
If you have received communication from the IRS, you should act promptly.
Failure to act in a timely manner can cause serious problems. Additional fees and interest can accrue on unpaid tax. If you disagree with the IRS’s determinations, failure to reply may bar you from appealing the decision.
It is especially critical to respond to an IRS notice if you’re unable to pay the full amount you owe on your taxes, because the agency may allow you to arrange a payment plan.
Beware of Scams
There are scammers out there who will send fake IRS letters and notices in an effort to obtain your personal information or even a check. Whenever you get a communication from the IRS, examine it carefully to make sure it is legitimate. If you are unsure, contact the IRS directly or reach out to a tax professional or attorney for guidance.
This article was originally published on the State Bar of Wisconsin’s Taxation Law Section Blog. Visit the State Bar sections or the Taxation Law Section webpages to learn more about the benefits of section membership.