IRS Letters: Today I will help you understand and respond to IRS letters. Hi, I’m Bette Hochberger, CPA, CGMA. And today, we’re going to break down those pesky IRS notices that sometimes you get in the mail. Now, why do you get a notice from the IRS? Well, it could be a couple of things. First off, maybe you owe them money. That’s probably the biggest reason why you end up getting mail from the IRS. Those little love letters saying, hey, by the way, you need to pay us. Sometimes the IRS will make a change to your tax return. For example, if you’ve got a Schedule C sole proprietor, single-member, LLC business, the IRS might say, hey, how do we know that all these expenses are legit? Can you send us some documentation to prove it? It is similar to a mini audit.
They might need to make sure you are who you say you are or a dependent you’re claiming is related to you. And sometimes, the IRS contacts you to tell you that they need more time. So if you do get these letters in the mail, the first thing is to open them and read them. Do not stick it in a drawer, forget about it, and hope that the IRS dissolves before anyone realizes you never got around to dealing with the situation. You have to read it. Next, you have to see, do they want you to respond? Because if they want you to respond, there’s usually a deadline. Usually, they’ll say as of X date you need to pay us, or you need to respond, or you need to do X, Y, Z.
And many steps can come after this that might rely on you responding in time the first time. For example, if they say, hey, you owe us a crap ton of money. But if you don’t have the money to pay it, you have some options. They might want you to go and set up a payment plan with them. In some instances, if you qualify, maybe you need to offer a compromise, which is asking the IRS to give you a break on your taxes. It doesn’t happen often. If you are qualifying for that, it’s a very, very special situation. Sometimes you get these things, you might need to keep copies of them, or you might need to provide information to the IRS. Like I said before if they’re questioning things like your expenses or deductions, things like that. These letters are also essential to keep. Sometimes these letters from the IRS can even be something like an identity protection pin. I can’t tell you how many times I’ve gone to file a client’s taxes electronically, and I get a notice, oh, hey, you need their ID pin. And people are like, what’s that? So hold on to those letters. Please send them over to your CPA, have them take a look at them for you.
Sometimes the language is confusing. Sometimes even for us, it can be confusing, especially if the IRS, which is happening more recently during the apocalypse than before, you might get things in a strange order. Usually, there’s a specific order that they will send a series of notices. And if they don’t send them in that order, it can be unclear. So when you get a letter, it’s like, hey, you owe $10,000. Remember how we told you? And you’re like, no, I never got a letter before. So definitely seek out professional help if it’s not something you can handle easily on your own.
Another thing is don’t panic. Even if you owe the IRS a lot of money or it feels like they’re coming to arrest you. They probably aren’t. Things do not move quickly with the IRS. So, yes, there are deadlines on these things. Yes, you need to respond. But if you don’t do it boom that day, you’ll probably be all right. You can even usually ask them for a 30-day hold on your account while you go and find your CPA, find your documents, whatever you need to do to resolve the situation; you can usually get that time if it’s reasonable.
The other thing I’m going to say is that I have often seen clients get letters from the IRS saying, hey, there’s a problem. We’re changing your return. And it could be that the IRS is wrong. So yet another reason to not ignore these letters. Open it, read it, hand it off to your CPA. I tell my clients all the time, “Please if you get any of these letters, send them to me.” I can often handle them or resolve them quickly. Usually, you might not owe the tax they say you owe, which is always a happy occasion for anyone when you find out you don’t owe that extra tax. And a lot of times, you don’t even need to call the IRS.
Sometimes you can get fake mail that looks like it’s from the IRS. Again, you’re only ever going to get a letter from them. Don’t respond to emails. Don’t respond to phone calls, faxes. I don’t know, whatever other crazy method people have of trying to scam you. It should have your name, your social, the type of tax form it’s for. And again, if you’re not sure, contact your CPA. Right? That’s part of why we’re here. We’re here to help you guys navigate the ins and outs of dealing with the IRS. So I hope that breaks it down a bit for you. I hope it makes it a little less scary. Remember, don’t panic. If you get them open them, read them, send them to your CPA. We’re happy to deal with these things.
And hope it makes a little bit more sense to you when you get an IRS notice now. And if you have any questions, drop them in the comments. Maybe I can even answer some for you here. So we’ll see you next time.