Tag: IRS notice

How to Respond to an IRS Notice

You’re flipping through the mail when you see it. An envelope with an IRS return address. OMG! What’s this about? Sure, you’re nervous but don’t stick it in a drawer. No matter what, it’s information that needs your attention. Whether you rip it open immediately or wait until you’ve sat down, you eventually see it – a Notice from the IRS with potential unwelcome news.

Now what? Your IRS Notice may be long and difficult to decipher, but it explains the reason they are contacting you and instructions on how to handle the issue. Maybe information reported by a third party does not match your return or you made a math error. The IRS might just be asking for clarifying information. 

Regardless, let’s simplify how to respond with a little Q&A:

  • Why did the IRS send me a Notice?

The IRS sends Notices to taxpayers who have a balance due, are due a different refund than originally reported, their return has been changed, or additional information is needed. Notices may also communicate the need to verify taxpayer identity or a delay in processing the return. Details are in the Notice. Read it carefully.

  • How should I respond?

Typically, you only need to respond if you don’t agree with the information in the Notice, if the IRS requested additional information, or if you have a balance due. If the income or payment information reported to the IRS doesn’t match your tax return, check to see if you made a mistake. It happens. Just pay the amount due, or at least as much as you can.

  • What if I don’t agree?

Sometimes the IRS makes a mistake or does not understand the information on your tax return. If that’s the case, make copies of any schedules or other clarifying documentation. Complete the Notice Response Form and include any necessary explanations. Don’t assume that the IRS can understand your documents without an explanation.

  • When should I respond?

IRS Notices require you to respond by a specific date. There are two main reasons you’ll want to meet that deadline – to minimize the accrual of any additional interest and penalty charges, and to preserve your appeal rights if you don’t agree. Keep copies of all Notices and your response (with support documents) for future reference.

Getting an IRS Notice is nerve-wracking but ignoring it will only make it worse. Read the Notice carefully and respond with an explanation by the due date if you don’t agree. Made a mistake? Pay the amount due, or as much as you can, to reduce additional interest and penalties. When you know what to do, getting a Notice from the IRS won’t make your heart skip a beat.

Want more details? Check out the IRS website.

Tax Balance Payment Options

Believe it or not, the IRS is still opening mail and processing tax returns that stacked up during the COVID-19 pandemic. Another IRS task that backed up over the last year is sending notices to taxpayers who have outstanding tax balances. If an IRS notice arrives in your mailbox, don’t panic. Open it right away, read it carefully, and verify the contents with your tax records. 

Even if the notice is due to an IRS mistake, you need to respond to get your tax records corrected. But what if the notice is accurate and you do owe taxes to the IRS? How can you pay?

The IRS offers several payment options, depending on your situation:

  1. Pay Now – Paying the full balance online is free if you can have the balance due debited from the bank account of your choice. Paying by credit card is an option but the fees are high, so make sure that you read the fine print first before making your decision. https://www.irs.gov/payments/online-payment-agreement-application
  1. Short Term Payment Plan – If you can pay the amount due in 120 days or less and the total amount due is less than $100,000, this could be the best option for you. No set-up fee is charged, and you can pay via direct debit from the bank account of your choice. https://www.irs.gov/payments/online-payment-agreement-application 
  1. Installment Agreement – If you need more than 120 days to pay, this option requires a set-up fee of between $31 and $225. Installment Agreements may require some financial information from you, depending on the amount due. https://www.irs.gov/payments/payment-plans-installment-agreements#costs
  1. Offer in Compromise – The IRS wants to collect all taxes due but does not want to create a financial burden on taxpayers. An Offer in Compromise allows you to settle your tax debt for less than the full amount owed if paying your full tax liability would create a financial hardship. See if you qualify at https://www.irs.gov/payments/offer-in-compromise.
Other considerations to keep in mind are:
  • Payment plan applications are generally easier to get approved for lower tax liabilities due than for large balances. 
  • The application process differs based on the tax liability outstanding. For example, applications for $10,000 or less are automatically approved as a guaranteed Installment Agreement. Amounts over $50,000 require a more thorough review to determine if assets can be liquidated to pay the taxes due.

The IRS has been catching up with its pandemic backlog, including sending out notices to taxpayers who have outstanding tax balances. If an IRS notice arrives in your mailbox, check it against your records. Really owe what it says? Remember that the IRS offers several payment options, depending on your situation.