An IRS Letter: What It Means and What to Do About It

Getting a letter in the mail from the IRS can trigger feelings of panic and horror in taxpayers. But don’t let this happen to you. Instead, take the appropriate action to resolve the matter as promptly and painlessly as possible.

An IRS letter is more than a nice hello

Don’t ignore the letter. It’s not merely a nice hello from the government; it is likely a correspondence audit. But if you receive an email purporting to be an IRS correspondence, don’t believe it and don’t respond in this case. The IRS never communicates with taxpayers via email.

Read the letter carefully to see what the IRS is asking of you. It may simply be a request for you to send certain documentation supporting a position you claimed on the return, such as substantiation for a charitable contribution you deducted. Gather the information and follow the directions in the letter about where to send photocopies of requested documents (retain the originals with your tax records).

If you agree

If the letter says you underpaid your taxes and asks you to pay up, read the explanation for the underpayment. It may be the result of your omitting or underreporting income that was reported to the IRS on a Form 1099. You may simply have made a mistake or a miscalculation, and here’s your chance to correct the error without any further hassle (you don’t have to file an amended return).

The letter likely will include the interest you owe on the underpayment. The amount of the interest indicated in the letter applies only if you pay up by a set date. If you take more time, you’ll continue to accrue interest charged on the underpayment.

If you disagree

You may disagree in whole or in part with what the IRS claims you owe in additional taxes to the government. The IRS can make mistakes, too, so don’t be quick to agree. Examples of IRS errors:

• Claiming you failed to file a tax return when you really did file one. If you have a copy of your return, plus proof of filing, simply provide photocopies to the IRS to close the matter.
• Claiming you owe taxes for a period that is beyond the statute of limitations. The IRS has only 3 years from the due date of the return in most situations to assess any back taxes. If that period has passed, you do not have to pay up.

If you are certain that you do not owe any additional tax, or owe less than what the IRS is claiming, explain your position to the IRS. Include any supporting documentation you may have. Again, be sure to respond no later than the date indicated in the letter.

Alternatively, you can call the toll-free number listed in the letter and talk with an IRS agent about the situation. You may be able to resolve the matter by telephone, without even replying formally. Make sure that if you respond in this matter and the agent says your case is closed that you receive confirmation of this in the mail (it can take a few weeks for a follow-up letter from the IRS).

Consult a tax professional

If you have any questions or concerns, it may be better to seek the advice of a professional rather than trying to respond on your own. An inappropriate response from you could open a can of worms.

Authorize the professional—your CPA, return preparer, or someone else—to represent you in the matter with the IRS. This usually means completing Form 2848.

Final thought

It isn’t as difficult or scary to deal with the IRS as you may think. Just be sure that you do not ignore any IRS inquiries and that you keep records of any correspondence and telephone communications concerning your attempts to resolve the matter.