One of the scariest things that can befall a taxpayer is the dreaded notice from the IRS stating you owe them more money than you can pay. When you open up the mailbox and see the return address of the IRS staring back at you, your heart is bound to skip a beat (or two).
Few people look forward to communicating with the IRS, but many taxpayers receive these notices every year. Knowing what to do next could make all the difference and possibly save your bank account if you find yourself on the receiving end of such a notice. Here are seven critical steps to take if the IRS disagrees with the income (or expense) figures you have reported.
Note: If you fall behind on filing your taxes, you’re not alone. We can help. Reach out to our tax law firm. We can help you determine how many returns you have to file to get back into good graces with the IRS. It may not be as many as you think or did not file. We have helped countless numbers of clients. We can do everything from helping you file late tax returns and negotiate with the IRS if you owe back taxes.
1. Stop panicking. Getting a letter from the IRS is enough to send your heart racing, but it is not the end of the world, and panic will not help you. Staying calm and reviewing the communication will be critical, so settle your nerves and move on to the next steps.
2. Review the document carefully. The letter you received from the IRS should lay out where they disagree with your figures and what they used to come up with their own math. (Many times, the IRS is anything but clear.) Reviewing these figures is the critical next step, and it is one you should take your time with when you check it. After trying to understand what the IRS says if you don’t understand what the IRS is saying, get professional help.
3. Pull a copy of the tax return in question. The communication you received from the IRS will tell you which year’s tax return is in question, so pulling a copy of that return should be your next step. Once you have the document in hand, you can review the figures and see the discrepancies.
4. Find your supporting documents. In many cases, these discrepancies are caused by simple errors like transposed numbers, so compare the figures on the supporting documents to what ended up on your return. You may find, for instance, that you reported interest of $2,150 as $1,250, and the solution could be as simple as ponying up the extra tax.
5. Contact a tax professional in handling tax problems – a tax attorney experienced in tax resolution. If you used a professional tax preparer, you might be tempted to talk to them first. That might be ok, but if you owe a large amount of back taxes, they might not be able to help. That’s where a good tax law firm can help. Our firm routinely deals with this kind of problem. We can actually negotiate on your behalf with the IRS and find the best resolution for your tax situation. Sometimes we can settle for less than what you owe in taxes!
6. Review the letter from the IRS. Suppose you did make a mistake on your tax return. In that case, you can simply agree to the figures the IRS reported and pay the additional tax, along with any applicable penalties and interest. If you disagree, you can respond with the supporting documents that prove your case. We don’t suggest you do this yourself. Remember that whatever you say or provide is “on the record.” Call our tax law firm to make sure you investigate the issue in its entirety. Otherwise, you could land yourself in more trouble. Remember, IRS notices have short deadlines for you to respond. You can miss important deadlines if you don’t take immediate action. You don’t want to end up owing the IRS money you should not owe them simply because you didn’t review a letter from the IRS and didn’t take timely action.
7. Follow up. It can take some time for these discrepancies to be resolved, so you will need to bring a healthy dose of patience. If you agree with the notice and choose to pay the extra tax, you can see when your check is cashed or the money is taken out of your account, documenting the situation and keeping careful records. If you disagree, you will need to wait for the IRS to respond, but make sure you don’t assume the issue is resolved unless you have a written document from the IRS stating that. In many cases, these are situations where you should try to handle it yourself without professional help.
If you do need to contact the IRS, keep in mind that their phone lines are extremely busy. Many people who have been through this trauma recommend calling early in the morning, right after the phone lines open, so you can get in line and get your questions answered before the lines fill up.
We NEVER suggest our clients try to contact the IRS on their own. It would be like going to court without a lawyer. The IRS is not your friend. Their sole responsibility in these cases is to collect taxes they think you owe them. While they will be professional and polite, don’t think for a minute that they are looking out for your best interests or trying to be your friend. That is not their job. Their job is to collect money, not to represent you. Representing you is our job if you decide you want our help.
Hopefully, you will never be on the receiving end of a nasty letter from the IRS. However, it is important to be prepared. If you do find a letter from the IRS in your mailbox, following the seven critical steps listed above could save you from further trouble.