Have you received an IRS Letter? Here’s What to Do Next

Getting a letter from the IRS can be stressful, but don’t panic—it doesn’t always mean trouble. The IRS issues notices for various reasons, such as missing information, tax return adjustments, or payment reminders. Knowing how to handle these letters properly can save you time, money, and unnecessary stress. Here’s a step-by-step guide on what to do next.

Why Did You Receive an IRS Letter?

The IRS sends letters for various reasons, and not all of them are bad. Here are some of the most common reasons you might receive one:

Missing or Incorrect Information – Mistakes on your tax return, such as erroneous Social Security numbers or missing income, may trigger a request for correction.
Discrepancies with IRS Records – If your reported income doesn’t match what your employer or financial institution provided, the IRS may adjust your return.
Balance Due Notice – If you owe taxes, the IRS will notify you of the amount and payment deadline to avoid penalties.
Refund Adjustments or Delays – If your refund amount is changed or delayed due to a tax credit adjustment, the IRS will send a notice explaining why.
Identity Verification Requests—If the IRS suspects identity theft or unusual activity, you may be required to verify your identity before processing your return.
Audit or Examination Notices – Some returns are randomly selected for review, while others may be audited due to suspicious deductions or income inconsistencies.
Unclaimed or Overdue Tax Credits – The IRS may notify you of tax credits you didn’t claim but may be eligible for, such as the Earned Income Tax Credit (EITC).
Request for Additional Documentation – The IRS may need proof of deductions, dependents, or business expenses before approving certain claims.

Key Takeaway: Not all IRS letters are bad news. Read the notice carefully, understand why it was sent, and respond promptly if needed.

How to Read and Understand Your IRS Notice

An IRS letter can feel overwhelming at first glance, but breaking it down into key sections makes it easier to understand. Here’s how to read and interpret your notice effectively:

Key Sections of an IRS Notice

Header Information—The notice number (e.g., CP2000, CP14, or 5071C) and the date it was issued are at the top of the letter. Keep this information handy when contacting the IRS.
Reason for the Notice—The letter will explain why the IRS is contacting you. Common reasons include tax discrepancies, payment due, or a request for more information.
Summary of Changes – If the IRS made changes to your return, the notice will outline adjustments to income, deductions, credits, or refund amounts.
Action Required – Some IRS letters require action, such as making a payment, verifying identity, or submitting additional documents. Others may be for informational purposes only.
Response Deadline – Many IRS notices have a due date for responses or payments. Missing the deadline may result in penalties or additional fees.
IRS Contact Information – The letter will provide a specific phone number and mailing address if you need assistance or want to dispute the notice.

How to Ensure Accuracy

Compare With Your Tax Return – Review the details in the notice and cross-check them with your tax return and supporting documents.
Look for Errors – Mistakes happen. If you believe the IRS made an incorrect adjustment, gather proof and be prepared to dispute it.
Check for Scams – The IRS never contacts taxpayers via email, text, or social media. If the letter asks for unusual personal information or payment methods like gift cards, it may be a scam.

Key Takeaway: Carefully review each section of your IRS letter to understand why it was sent and what action, if any, is needed. If you’re unsure, compare it with your tax return or contact a tax professional.

What Steps to Take After Receiving an IRS Letter

Receiving an IRS letter can feel overwhelming, but handling it correctly can prevent unnecessary stress and penalties. Follow these steps to address the notice properly.

Read the Letter Carefully

Identify the notice type (e.g., CP2000 for tax discrepancies, CP14 for a balance due, and 5071C for identity verification).
Determine if the letter requires action or is for informational purposes only.
Pay attention to any response deadline to avoid penalties or additional interest.

Verify the Information

Compare the letter with your tax return, W-2s, 1099s, and other financial documents.
Check if the IRS’s proposed changes are correct or if an error has been made.
If the letter is unclear, research the notice type on the IRS website or seek professional help.

Determine If You Need to Respond

No response needed – If you agree with the IRS’s adjustments and no action is required, you don’t need to respond.
Response required—If the IRS requests documentation, payment, or verification, follow the instructions before the deadline.
Dispute the notice – If you believe the IRS made a mistake, gather supporting documents and submit an appeal following the instructions in the letter.

Make a Payment If Necessary

If you owe taxes, pay promptly to avoid additional penalties and interest.
Payment options include:
- Online through the IRS website (IRS Payment Portal)
- By mail using the payment slip included in the letter
- Setting up a payment plan if you can’t pay the full amount immediately

Contact the IRS If Needed

Call the IRS phone number listed on the letter if you need clarification.
Have your Social Security number, tax return, and notice number ready.
Be prepared for long wait times, especially during tax season.

Keep a Copy of the Letter for Your Records

Save the IRS notice along with any documents, correspondence, or payment receipts.
Keeping records helps in case of future disputes or issues with your tax account.

Seek Professional Help If Necessary

Consult a tax professional (CPA, enrolled agent, or tax attorney) if:
- You don’t understand the letter or how to respond.
- You owe a significant tax debt or need a payment plan.
- You received an audit notice and need representation.
- You need help disputing an incorrect tax assessment.

Key Takeaway: Read the IRS letter carefully, verify its accuracy, and follow the instructions before the deadline. If the situation is complex or you need assistance, consult a tax professional to avoid costly mistakes.

When to Contact a Tax Professional

Some IRS letters can be handled on your own, but complex issues may require expert help. Tax Lawyer can guide you with IRS disputes and help maintain compliance.

When to Seek Professional Help

Audit or Examination – A tax professional can help you respond and represent you in an audit.
Tax Debt or Payment Issues – If you owe a large amount, they can negotiate payment plans or settlements.
IRS Liens or Levies – If the IRS threatens wage garnishment or asset seizure, act quickly.
Disputing IRS Findings – Professionals can appeal incorrect tax assessments or adjustments.
Tax Identity Theft – If your return was flagged for fraud, an expert can resolve it.
Business or Self-Employed Taxes – Tax pros help with complex deductions, payroll issues, and IRS compliance.
Unfiled or Past-Due Returns – If you missed filing taxes, they can help file and reduce penalties.

How a Tax Professional Can Help

Explain the IRS notice and your options
Communicate with the IRS on your behalf
Negotiate to reduce penalties or set up payment plans
Ensure compliance and prevent further issues

Key Takeaway: If your IRS notice involves an audit, tax debt, legal action, or complex tax issues, a tax professional can protect your rights, minimize penalties, and help you resolve the situation efficiently.

How to Avoid Future IRS Notices

While receiving an IRS letter isn’t always a bad thing, it can be stressful and time-consuming to resolve. The best way to prevent future IRS notices is to ensure your tax filings are accurate, complete, and compliant with tax laws. Here’s how to reduce the chances of receiving another letter from the IRS.

File Accurately and On Time

Double-check your tax return for errors before submitting.
Use tax software or hire a someone to ensure accuracy.
File by the tax limit deadline to avoid penalties and IRS follow-ups.

Report All Income

Include all sources of income (W-2s, 1099s, freelance work, investments, rental income).
Match your reported income with IRS records to prevent discrepancies.
Be aware that the IRS receives copies of your tax documents so that any missing income can trigger a notice.

Keep Detailed Tax Records

Maintain copies of tax returns, W-2s, 1099s, and receipts for at least three to seven years in case of an audit.
Keep documentation for deductions, credits, and business expenses to support your claims.
Store records digitally for easy access and security.

Be Cautious with Deductions and Credits

Only claim legitimate deductions and credits that you qualify for.
Ensure you have proof for business expenses, charitable donations, and other write-offs.
Avoid overstating deductions, as excessive claims can flag your return for an audit.

Pay Your Taxes on Time

Pay in full or set up a payment plan if you owe taxes to avoid penalties.
Consider quarterly estimated payments if you’re self-employed to prevent underpayment notices.
Use the IRS Online Payment System for secure and timely payments.

Respond to IRS Notices Promptly

If you receive a notice, read it carefully and take action before the deadline.
Ignoring an IRS letter can lead to penalties, interest, or enforcement actions.
If you don’t understand the notice, consult a tax professional before responding.

Stay Updated on Tax Law Changes

Tax laws change frequently, so stay informed about deductions, credits, and filing requirements.
If you own a business or have complex taxes, work with a tax professional to stay compliant.
Subscribe to the IRS newsletter or check their website for updates.

Key Takeaway: Accurate filing, proper documentation, and timely tax payments can help you avoid future IRS notices. If you’re unsure about tax laws or complex filings, consult a professional to reduce errors and ensure compliance.

FAQs

What should I do if I receive an IRS letter but don’t understand it?

Call the IRS using the contact information in the letter or consult a tax professional to interpret it.

What happens if I ignore an IRS letter?

Ignoring an IRS letter can result in penalties, interest, and even legal action in severe cases.

How can I confirm if an IRS letter is real or a scam?

The IRS always contacts taxpayers by mail first. Scams often involve phone calls, emails, or texts. If in doubt, call the IRS directly.

Can I dispute an IRS notice?

Yes, if you believe the IRS made an error, you can dispute the notice by following the instructions in the letter and providing supporting documents.

How do I set up a payment plan with the IRS?

You may be applicable for an installment plan on the IRS website if you owe taxes and cannot pay in full.

Additional Resources

For more information and assistance, visit these official IRS resources:

IRS Notices & Letters Guide – https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter
Set Up a Payment Plan – https://www.irs.gov/payments
Find a Tax Professional – https://www.irs.gov/tax-professionals
Check for Tax Scams – https://www.irs.gov/newsroom/tax-scams-consumer-alerts

Conclusion

Although receiving an IRS letter may seem overwhelming, you can swiftly fix the issue by following the correct procedures. Carefully read the notice, understand its purpose, and respond accordingly. If the situation is complicated, don’t hesitate to seek professional assistance. Being proactive can prevent further complications and give you peace of mind.