I’ve been reading Game of Thrones recently, and one of the sayings that keeps showing up is “dark wings dark words,” which is to say that carrier ravens (because carrier pigeons don’t have enough death to them for George R. R. Martin) always bring bad news.
Considering the symbol attached to the corner of every IRS notice, the same saying could be used with the IRS’s missives.
So the bad news eagle has landed in your post box. Now what?
Since I seem to be on a book theme today, let’s quote Douglas Adams:
As long as you were honestly trying to do your taxes correctly, the IRS notice isn’t the end of the world. Yes, you could end up owing more in taxes. That’s a ghastly possibility. It’s still better than jail.
Okay, got your heart a little bit under control? Hopefully? Let’s move on to a few things you need to keep in mind.
Figure Out The Problem
Figuring out the actual concern from an IRS notice is often about as easy as capturing a thieving mouse with your bare hands. Here’s a couple things to look for to help you figure it out.
First, in the very corner of the IRS notice should be a Notice number. CP200, CP210, etc. These are standard numbers, and typing them into Google can help you get the general gist of the IRS notice.
Next, the actual text of the IRS notice should explain it on the first and second page. Past that it’s typically boilerplate language. Not always, but typically. I have seen IRS notices completely blank except for a “Pay This Amount” right on the front, so it’s not guaranteed, but it should help.
If the IRS notice does break out tax line numbers, comparing it to your tax return can help you figure out which item they thought you got wrong.
Finally, if all else fails, they provide a number to call on the notice. Typically, the IRS Help Desk is, well, helpful, it just takes waiting through hour long hold music sessions, the same upbeat ditty playing in your ear over and over until it embeds in your brain and attacks you very nightmares.
Agreeing (or Disagreeing) With The Problem
Sometimes, you just screwed up. Suck it up and deal with it. If that’s the case, skip this section.
That’s not always true, though. Here are a couple common errors I’ve seen the IRS make:
(1) Entered Bad Data. If the IRS provides a line by line reconciliation on the notice with your return, make sure the “You Filed” part matches up to your actual filed return. It doesn’t always. This is especially likely if you didn’t e-file your return, since someone at the IRS would have had to manually enter it into their system.
(2) Missing Payments. I’m surprised how often I’ve seen payments either missed or incorrectly applied by the IRS and other taxing agencies. Double check all the payments you’ve made to them, including any prior year overpayments.
(3) Bad Documents. This one can be tricky. Every now and then I’ve seen 1099’s wrongly applied to a person. Typically this comes in a parent/child case where both are at the same bank (especially if the child is a “jr.”), but on one occasion it was totally a banking error. If this happens, you’ll have get the bank (or whatever entity) fix the error and send it to the IRS.
(4) Additional Explanation. Some items just need additional explanation, but the IRS notice will use some pretty scary language to motivate you to provide it. The example I’ve used before is a home loan being split between siblings. On your tax return, each sibling can deduct a portion of the mortgage interest, but often the bank will only supply the 1098 in one of the sibling’s names. If either sibling gets the notice, often it just needs to be explained to the IRS.
Fixing the Problem
While the IRS Help Desk is good at explaining the problem, they’re typically useless in getting it fixed. Instead, you’ll need to write a letter–an actual, real life, paper and envelope and stamp letter–to the address given in the IRS notice. Different notices can go to different locations, so be careful with the address.
In any correspondence, make sure to include a COPY of the notice, along with an EXTREMELY CLEAR explanation of the issue. Most IRS agents are intelligent people, but they go through so many issues a day that they really don’t want to puzzle out what you’re trying to explain.
Your strongest argument will be made if you can provide a copy of any documents backing your position up. Receipts, tax forms, etc.
Send the letter Certified Receipt with the USPS. Expect it to take quite a while to resolve, at least a month or two. Don’t be surprised if you get a follow up notice asking for more information.
Playing it Safe with Interest And Penalties
If you owe taxes, the IRS notice will likely tack on interest and penalties for the late payments. If the IRS is wrong in its assessment, obviously you don’t have to pay that. However, if you are wrong, the interest will keep accumulating during your correspondence battle. If you want to play it safe, you can always pay the bill then attempt to get a refund.
Treat This As A Negotiation
Even if you honestly screwed up on your return, you might not have to pay the entire amount on the notice. Those interest and penalties could potentially be waived if you work with the IRS, admitting your fault and begging for forgiveness.
At times, they might simply disagree with the manner that you reported some of your items. You could be completely wrong, but sometimes you might have validity to your method. If you work with the IRS, you could end up paying some additional taxes, but less than the notice states.
If you can’t pay the full amount up front, the IRS is typically fairly understanding and can work out a reasonable payment plan.
Side note: I’ve heard that some states are less understanding with payment plans, but it’s worth a try with them as well.
Don’t Be Afraid to Get Help
The vast majority of notices are simple matters that can be resolved with a bit of patience and some back and forth with the IRS. If it is more complex than that, don’t be afraid to go to a CPA or Enrolled Agent for help. Some issues can get really tricky really fast, and hiring someone else to look into it for you can save you a whole lot of headache.