“Help! I received a letter from the IRS, they want to audit me.” We’ve heard this cry numerous times, and rarely does the IRS actually want to audit you. Most IRS correspondence can be cleared up fairly quickly, although it often times require some sort of payment. There are many reasons why you could possibly get a letter from the IRS, including, but not limited to: The IRS has made a change to your return, you owe them money, or the IRS needs to verify your identity to name a few.
In any case, the first step is to read the notice and see what exactly it is they are looking for. Take note of the due date on the correspondence. Failure to respond within the time indicated will add interest and penalty to the proposed balance.
One of the more common types of letters that the IRS will send is a “CP-2000” letter. This letter is a notice of underreported income. The IRS compares information reported to them by employers, banks, businesses and other payers on W-2s, 1099, etc. with the income you reported on your tax return. If the numbers don’t match, you will be sent a CP-2000 letter. This letter will notify you of the underreported income as well as calculate the increase in tax due to the IRS. Keep in mind this letter is not a bill; it is a proposal to adjust your tax return which may result in additional tax. Review this information carefully in order to verify its accuracy. On the response form you should indicate whether or not you agree with the changes.
If there was a proposed balance due and you do not respond you will send you a CP-3219 letter, which is also known as a 90 day letter, this will include additional penalties and interest. You will have 90 days from the date on this letter to file a petition with the tax court if you want to challenge the proposed tax. If you still don’t respond, the IRS will issue a bill and start their collection process. This could include bank levy and/or wage garnishment.
There are many types of IRS correspondence you may receive, another common letter is the “12C letter”. This letter means that the IRS has received your tax return, however they do require additional information to finish processing the return. Once again there will be a due date to respond, failure to do so will result in the IRS adjusting your return and reduce your refund or increase your balance due.
The topic of IRS correspondence brings up another issue. As you may be aware, there is currently an aggressive phone scam going on, in which the caller impersonates the IRS and threatens your arrest, law suit or license revocation. There are many variations to the scam, but don’t fall victim to it. Do not give any information to these callers. If you’d like to verify that the phone calls are in fact a scam, do not call the number they leave you, instead call 800-829-1040 and an IRS employee can help you.
Bottom line; as scary as it is, you must act when you receive IRS correspondence. It’s not going to go away on its own. Remember, the CP-2000 letter is only a proposed adjustment, the increase in tax may not be correct.