Wednesday, February 15, 2012

Deal with IRS Notices Immediately

When ever I get an IRS notice, I deal with it right away.  Procrastination doesn't work with the IRS, even when one is right.  When one doesn't respond or make payment, the IRS assumes noncompliance and escalates the matter with a second notice, then penalties and interests, and finally a collection agency.  Once the issue is passed to a collection agency, there isn't an opportunity to resolve the original issue.

Here's what I've learned about IRS notices.
  • The IRS can be wrong.  In my experience, I estimate the IRS notice is incorrect or missing information about 60% of the time.  In these cases, gathering the necessary information and sending a copy to the IRS will resolve the issue.

  • Information request.   Sometimes the IRS is just asking for documents to support deductions or credits taken on a tax return.  For example, a colleague of mine received a request for charitable contribution receipts.  He immediately made copies of his receipts and mailed them.   If he had ignored the request, the IRS would have eventually denied his deductions and sent him a bill for taxes owed.

  • Use the provided phone number.  The notice will provide a reference number, contact number and sometimes a contact name.   Use these contacts instead of calling the general IRS number.   These allow the taxpayer to make quick contact with the IRS to resolve the issue. 

  • Personally, I have received four IRS notices.   The first was a notices of an increased refund due to a math error I made.  (Bonus:-).  No response was needed.   The second was a notice that my mom's tax return was not signed and the refund was denied.  Once we faxed the IRS contact a power of attorney signed copy, the return was approved as is and the refund was sent.   The third notice was a confirmation of an additional refund from an amended return.  I was surprised to receive multiple notices, called to confirm, and found out the IRS sends a notice to confirm revisions made to each section.  Again, no response was needed.  The last notice I received was for the non-profit at which I worked.  Unfortunately, I did not get the notice until several months after the first notice was sent.   The IRS has already assessed penalties for not responding. However, with several calls to the contact number, I was able to explain what had happened (original notice mailed to wrong address) and find out what was need to eliminate the penalty.   The non-profit filed the necessary paperwork and the penalty was removed.

    Finally, when the IRS is correct in assessing more taxes (e.g. missed reporting income from a W-2), one can just pay what is owed and the matter is resolved.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial or tax advice. Please consult a professional advisor.

    Copyright © 2012 Achievement Catalyst, LLC

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