Is There a Right Way to Handle an IRS Notice?
June 22nd, 2021
The short answer is YES! Though many tax practitioners have different approaches when dealing with the IRS, one thing they probably agree on is that not properly handling an IRS notice in a timely manner, especially when there is a deadline, can be catastrophic. Receiving a notice in the mail from the IRS can be a stressful experience. It is critical to be aware of the item(s) that is the subject of the notice and any deadlines to send documentation to, or contact, the IRS. For some, it may be an initial reaction to ignore an IRS notice and hope that it goes away, however, this approach is strongly not advised.
The IRS selects returns to audit based on a Discriminant Function System (DIF) score. This score is determined by a computer-generated program that compares a taxpayer’s return to others within the same or similar group and any differences in deductions that a taxpayer reports compared to that of average taxpayers within that group. This method is used to select returns that generate the highest probability of additional audit revenue. Typically, IRS audits are initially conducted by mail known as “correspondence audits.” Such audits may request documentation to substantiate certain items on a return such as, unreported income, support for deductions, or clarification of discrepancies.
Not all IRS notices should illicit fear or anxiety. There are instances when the IRS will send a notice that does not involve an audit. Those reasons may involve the taxpayer having an outstanding tax liability, is due a larger tax refund, verifying information to protect against identity theft, or notification of delays in processing returns. Generally, the contents of a notice will specify its purpose and provide options instructing a taxpayer on how to proceed. Typically, if a taxpayer agrees with information provided in a notice, then no additional action is needed. Conversely, if a taxpayer does not agree with information provided in a notice or is required to provide a response by a certain date, then the taxpayer should provide any appropriate documentation requested or a response on or before that date to avoid unfavorable tax ramifications.
Not Responding in a Timely Manner
Failure to respond to a notice in a timely manner exposes a taxpayer to several problems that could be avoided at the onset. Some of the more severe consequences include having one’s appeal rights waived or lien and levy actions being initiated against the taxpayer.
It is in a taxpayer’s best interest to respond appropriately within the timeframe provided in a notice. Having a knowledgeable tax professional help navigate these issues can prevent making costly and avoidable mistakes. At Waugh PLLC, our experienced attorneys walk with our clients step by step through IRS audits and handling notices to ensure they avoid the pitfalls experienced by many taxpayers.
If you would like to schedule a consultation to discuss your IRS tax matter in confidence, feel free to reach out to us at firstname.lastname@example.org.