Ultimate Account Blog

IRS Tax Notices: Why You Received One & How to Fix It

woman looking at laptop in frustration

Have you ever received a notice from the IRS or a state revenue agency letting you know that changes were made to a previously-filed return and now you owe additional tax?  If so, then you know that feeling of dread that comes over you. Perhaps your first thought was to call one of the tax relief agencies you hear countless advertisements for. You know, the ones who can make your tax burden virtually disappear!

Whether or not you’ve received an IRS tax notice before, it’s important to know that the notices are common and accountants see them regularly. There’s no need to panic! The notices can often be resolved simply by communicating with the agency directly. 

Reasons Why IRS Tax Notices Are Received

There are many possible reasons why the IRS or a state agency sends a notice.  Below are some common circumstances that prompt the sending of notices.

  • Your return was changed by the taxing authority
  • There are questions regarding your return
  • Additional information is needed
  • The agency needs to verify your identity
  • You have a balance due

Technological advancements have allowed agencies to utilize computers to compare information reported on your return with information reported by employers and third-party financial institutions. For example, do the wages you reported on your tax return match the wages reported on the W-2 your employer submitted to the IRS? If the wages do not match, an IRS tax notice would be triggered and your return would be changed to match the wages on the W-2.

How to Respond to an IRS Tax Notice

If you do receive a notice, read it carefully. Compare the information in the notice to your original return so you can identify what is being changed or disputed.  Whether you agree or disagree with the notice, always respond by the date provided to preserve your right to appeal. Responding to the notice will also minimize any interest and penalties being assessed. Use this guide to make sure you handle the notice correctly:

man sitting at desk on the phone

  1. Call the IRS or state agency and speak with a representative.  They can help you understand the reason for the IRS tax notice and help determine what needs to be done to resolve the issue.
  2. If you agree with what the notice is stating, then simply pay the amount due or follow the instructions provided.  The amount you owe may be more than you can afford in one payment.  Fortunately, the IRS offers payment plans so you can pay the amount due over an extended timeframe. 
  3. If you do not agree with what the notice is stating, write a letter explaining why you disagree. Provide reasons as to why you are correct and include any documentation that supports your case. Remember that you are trying to win your case, so be respectful in your writing. Offer to answer any questions the IRS or state agency may have with regard to your letter.
  4. If you realize you forgot to report income and the notice is assessing tax on this income plus an additional penalty and interest, you can offer a compromise. Write a letter stating that you will pay the tax due, but you’re requesting the penalty and interest be abated. If you admit that you failed to report the income and it was an honest mistake, then there is a good chance the IRS or state agency will accept your request to abate the penalty and interest. However, this method should only be used by first-time offenders, as agencies will catch on if you make the mistake repeatedly. 
  5. Keep a copy of the notice and any correspondence you have with the IRS or an agency. This will ensure you always have proof of the issue.

Dealing with tax notices is a much simpler process than most people believe it to be. Keep in mind that everyone makes mistakes, including the IRS and state revenue agencies.  If you do receive an IRS tax notice, it does not necessarily mean you did something wrong or you owe additional tax.

If you’ve received an IRS tax notice and don’t feel comfortable handling it, reach out to one of our professional tax advisors to help resolve the issue!

Seth Miller, CPABy Seth Miller, CPA
Seth Miller is a senior accountant with Walz Group. He focuses on providing tax preparation services for both businesses and individuals. His role includes working with clients to help them better understand their tax needs to allow them to maximize their overall business or personal financial success. Connect with Seth on LinkedIn