Now that summer is officially here taxpayers have likely started receiving notices from the IRS (and states) for regarding issues with their most recent tax year’s filings. Some of these notices include recalculation of tax bills, failure to file (and pay) notices, and even the dreaded audit notice! As alarming as these may seem, and some of them may be, a more common reason a taxpayer receives a notice is a request for additional information. Long story short, most inquiries can be handled easily with a written response to the notifying party through the mail.
What to Do
If you find yourself in a position of having received a notice there are a few things you should do. First off, do not ignore the notice! I can’t stress this enough. As with most things in life, by ignoring the notice, you’re just going to make the matter worse. Even if you don’t think you can resolve the issue on your own, you’re better off hiring a tax professional to act on your behalf. The right individual (or firm) will be able to explain the notice to you and prepare any supporting schedules or correspondence on your behalf. If necessary, you can even complete a Power of Attorney to grant them authority to speak and act on your behalf. If you ignore the notice though, penalties, fines, and interest (as well as levies) can accrue quickly. I have heard several cases recently of garnishments being imposed among taxpayers at both the federal and state levels; all because those taxpayers ignored the notices they received.
Regardless of if you choose to retain someone to help guide you or go it alone, you’ll need to locate the documentation regarding the tax year you received a notice for. Notices typically indicate the year, issue, any recalculations made, and a response due date, as well as directions on how to respond. Make note of the due date since missing it carries its own consequences.
When reviewing your notice you will be presented with options. You usually have the opportunity to comply (and pay any difference due) or disagree and explain your side. In the event that you find the notice is correct and you owe more in tax, your best course is likely to pay the amount due and move on. If the amount is large and you can’t pay it in one lump sum you should be able to enter into an installment agreement to pay it over time. If you disagree though, then it is worth your time to review your supporting documentation and draft a well-written response stating the facts as you have them and citing why you feel your position is justified. When drafting your response it is best practice to indicate all of the header information from the original notice as reference for the receiving party. Be sure to include your social security number and sign your response. If you are married and filed jointly with your spouse then you should include your spouse’s social security number on the response and have them sign the notice as well. Note that any unsigned written correspondence will not be valid.
Business Tax Notices
If you are a business owner then the scope of notices you might receive is different. In addition to receiving a notice related to income taxes, you may also receive a notice regarding sales taxes or payroll withholding taxes. Most commonly, notices for either of these types of taxes arise out of a failure to file the correct forms. If that is the case, you should file any missing forms and remit the associated taxes immediately. Since sales taxes are controlled by the states, you are playing with fire if you fail to file and pay on time. The states have the authority to close your business until all back taxes have been paid. This is clearly not a problem you want to have. You can treat payroll taxes with the same urgency (if not as a higher priority) because those cases you will likely have the feds and state looking to be paid.
I hope you found this brief read helpful. It’s hard to give specific advice because all notices are different as is every taxpayer's situation. As unexciting of a topic as it is, the information is handy to have nonetheless. Taxpayers should take time to think through their options if they receive a notice, but they certainly should not wait too long to act or ignore them either. If you have questions you should reach out to a professional or contact the notifying party for guidance in resolving the matter. Individuals will find it hard to live their lives if garnishments and levies are imposed upon them, and similarly, business owners can have their operations halted if they do not comply with the notices.
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