After working in the area of tax preparation for more than 30 years, I have learned that even if you are a good, thoughtful tax preparer, you might still get notices from the IRS and/or Wisconsin Department of Revenue. Notices are delivered in May and June.
The following is my guide to common IRS notices and how to react to them. First of all, never, ever ignore a letter from governmental regulatory bodies and always be polite in responding within the time allowed.
Notices occur as a result of matching. These notices typically are sent within six months of the filing of your return. Now that we’re filing returns on computers, the IRS has an easier job matching documents filed with the agency each year against income tax returns. When the document the IRS expects to see doesn’t appear in the exact amount or exact place it expects to see the document’s numbers, it will issue a CP2000 notice. An example of this is if the IRS received a 1099-INT indicating that $200 was paid to you by the Bank of X. If your Schedule B on the tax return doesn’t reflect this $200, a notice will be generated in which the additional $200 is added to your return, an assessment is made, and a response time is provided in which you can let the IRS know whether you agree or disagree.
What should you do if you get such a notice? Again, don’t ignore it. If you don’t review the notice and notify the government as to why it can’t find the amount in question, it will assume (as instructed in the notice) that you agree with it. Its calculation of the additional tax owed will then be billed to you and you will be obligated to pay this amount, typically with additional interest.
I find that people often believe any notice received from the IRS is a correct notice. This isn’t always the case. If you have already reported the $200 on your return and that fact has been overlooked by the IRS, you should respond to the sender of the notice. Often, we find that the notices are not correct. Either the agent reviewing and comparing the document to the return has overlooked the information or can’t interpret where on the return the information has been shown. So it’s important to respond to the notice when it is in error … or have your tax preparer send a response for you. If you instead agree with the government’s findings, you can pay the additional calculated tax. Both options are available with the notice.
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Some notices ask for more information. These notices are sent at any time after a return is filed, but often a year after the return was filed, when the IRS feels there has been an error in the reporting of existing information. An example of this is the IRS asking for proof of charitable contributions deducted, proof of the mortgage interest claimed, or some other aspect of a tax item that was included on the original return. These notices try to catch common errors on the return or verify items that often are miscalculated or misreported.
Here again, don’t assume the notice is automatically correct just because it has been questioned or recalculated by the government. Typically, you or your tax preparer has already considered the issue at hand and the documentation requested is at your fingertips. When you get the letter, answer it with a meaningful response and provide the documentation when requested. My suggestion: Be polite, accurate, and complete. Once your additional information has been reviewed by an agent, you will receive a reply regarding whether you have satisfied him or her on the questioned area. This will take a couple of months, but your response will be addressed and a final decision will be made, and in the end you can be satisfied in knowing you got the issue resolved.
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