Dealing with an IRS Notice

“The hardest thing in the world to understand is the income tax.” — Albert Einstein

For most people, communicating with the IRS is a fearful event. After all, many IRS notices are requests for more money because of an apparent mistake by the taxpayer. It seems like a lose only situation. However, the IRS notice is only a beginning which notes a difference in calculation of income or requests for proof of deductions or credits. The next step is to minimize the increase in income or verify the the deduction or credit.

Here's how I do it:

Read the specifics of the IRS note. Is it a claim of under reporting of income? Denial of deduction or credit? Or a request for documentation? Depending on the note, different actions may be needed.

Know the tax regulations involved. Understand the definitions, requirements and details of the tax laws. The IRS isn't interest in arguments based on emotions, fairness or logic. Specifically, the IRS will be look at the facts that demonstrate compliance with the regulations.

Assemble the documentation. If the IRS is correct, I agree and pay the requested amount. If I don't agree, I use the facts to develop support for my case. Doing an amended return for the tax year in question is often a good way to prove my case.

Submit the information before the deadline. I always submit my supporting documentation before the deadline. The IRS usually allows 30, 60 or 90 days to respond If I need an extension, I call and request one.

From my experience, I estimate the IRS is completely right about 25% of the time. About 50% of the time, the IRS is only partially right and less is owed than the amount requested. About 25% the IRS has made a mistake and nothing is owed. In rare cases, there is even a refund.

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

Copyright © 2011 Achievement Catalyst, LLC