A letter from the Internal Revenue Service can be a scary thing. How do you respond when the IRS is telling you that you owe back taxes, are receiving an audit, or are in danger of a tax lien?
The IRS sends millions of notices to taxpayers every year, and most are simply intended to clarify a discrepancy or amicably settle a tax dispute. It’s important to understand that the IRS generally isn’t looking to bring down the hammer on honest taxpayers, even if mistakes were made. To resolve your issue, you first need to understand how to respond to that IRS letter.
Why Does the IRS Send Letters to Taxpayers?
The IRS sends letters for numerous reasons, most of which are related to a recent or past tax return. For example:
The information on your tax return doesn’t match the IRS’s own records.
The IRS has made changes or corrections to your tax return.
Your tax return contains errors.
The IRS believes that you underpaid or overpaid your taxes.
The IRS believes that you owe back taxes.
You have been selected for an IRS audit.
You are receiving a bill for unpaid taxes or a monthly installment payment.
You are receiving an annual notice of payments received.
You are receiving a tax refund by mail.
In rare cases, taxpayers may receive a certified letter alleging criminal tax fraud or tax evasion. This is typically a last resort that occurs after the IRS has exhausted all other methods of resolution. So if you do receive a letter that requires your attention, don’t just set it aside. Ignoring the IRS will only make the situation worse.
Do You Need to Respond to an IRS Letter?
Not all IRS letters require a response. For instance, if you’re just being notified of a correction on your tax return or provided with a record of your payment history, you can file the letter with your financial records and call it a day.
There are two instances when you must respond to the IRS:
The letter specifically requests a reply. For example, if the IRS sends you a letter saying that your tax return is incomplete due to a missing 1099, you need to respond right away—either by providing the missing document and updated tax return or by disputing the claim. If you ignore this type of letter, the IRS will consider you to be delinquent.
You disagree with the contents of the letter. Even if the letter doesn’t specifically solicit a reply, you’ll need to respond if you disagree with the contents. For example, if the IRS amends your tax return and sends you a smaller refund than you anticipated, you can appeal the changes if you believe the IRS is mistaken.
In some cases, a reply may be as simple as checking a box and providing your signature. In other cases, your reply might require a personalized letter accompanied by supporting tax and financial documents.
How to Respond to a Letter From the IRS
If you’ve received an IRS letter that requires a reply:
First read the letter in its entirety. Make note of any specific information or documents being requested. Your letter will contain specific instructions for how to reply.
Print and complete any required forms. For example, if you need to request a monthly installment agreement to pay back taxes, you’ll print and complete IRS Form 9465. If you need to file an amended tax return, you’ll have to download IRS Form 1040-X.
Gather any supporting documents. Depending on the dispute, you may need to provide employer tax documents like W2s or 1099s, or you may need to provide receipts or other supporting documentation related to your deductions or expenses.
Draft a response letter to the IRS, outlining any claims that you dispute. Provide specific reasons why you believe the IRS is mistaken, and reference your supporting documents. If you’re not sure how to draft the letter, you can find IRS letter-of-explanation templates online. Note that this step is only necessary if you’re disputing an IRS letter. If you agree with the original letter, you can skip this step.
Mail your IRS response letter—along with your supporting records and the lower tear-off portion of the original IRS letter—to the address provided at the top of the original letter.
The IRS will review your correspondence and respond accordingly. Allow at least 30 days for reply. There’s usually no need to call the department.
Avoid Scams When Responding to IRS Letters
One important thing to note: Before you respond to any correspondence, make sure that the inquiry is legitimate. There are a lot of IRS scams going around, most of which are carried out by phone, email, and social media. The IRS will never initiate contact via these channels; they will always initiate contact by mail. So if you receive a phone call or text message saying that you owe back taxes or are being charged with tax evasion, it’s a scam.
In some cases, you may even receive a fraudulent IRS letter in the mail that appears official. There are a few red flags common among fake IRS letters:
The letter contains only vague information. Aside from your name and address, it doesn’t contain any personal, verifiable records related to your tax history.
The letter asks you to send a response to a non-IRS address. You should easily be able to Google-search the provided address and verify that it’s a legitimate IRS facility. Many fake IRS letters originate from an address in Austin, TX, and request that you send payment to an Austin P.O. Box (don’t do it).
The letter is threatening in nature. It might make reference to a lawsuit or arrest for unpaid taxes that you know nothing about. The IRS doesn’t engage in explicit scare tactics, especially with an initial correspondence.
If you receive a letter that looks suspicious, call the IRS at (800) 829-1040 to confirm the validity of the correspondence.
Do You Need Help Responding to a Letter From the IRS?
Drafting an effective IRS response letter can be difficult, especially if you’re under the threat of a tax audit or worse. If your tax issues are more complex and problematic than a simple arithmetic error on your 1040, we recommend employing the services of a knowledgeable and experienced accountant, preferably a Certified Public Accountant (CPA) who specializes in personal and business tax services.
The benefits of working with a CPA are twofold: First, they’ve passed the most stringent certification requirements in the nation, so you can enjoy greater confidence in their abilities. In addition, a CPA is legally authorized to represent you in a tax audit, so they can handle your dispute from start to finish.
Whether you decide to reply on your own or employ the services of a tax professional, don’t let that IRS letter collect dust on your desk. The sooner you deal with it, the better your ultimate outcome will be.