You got your mail and, nestled in between the Val-Pak and the grocery circular, there is a letter addressed to you from the Internal Revenue Service.  As you break into a cold sweat, the world starts to get kinda fuzzy…

What should you do?!?

First, you should remember to breathe.  The next thing you should do is open it.  Read it.  Make sure the name and social security number match yours.  Try to assess why they are writing you.  Find the tax return or filing referenced and compare the IRS notice to your records.  Call your tax preparer or adviser to discuss the issue at hand and what action should be taken.*  While there are occasional exceptions, the vast majority of IRS notices will require a response in a timely manner.

What NOT to do…

Ignore it.  Hope it will go away.  Procrastinate dealing with it.  As I said above, most notices require a response.  Ignoring one IRS notice will generally cause another follow-up IRS notice.  This second notice (or third or…) is usually not as pleasant as the first one, so you don’t want to let it get to that point.

Other fun info about IRS notices…

You can get IRS notices for many different reasons.  Most of the time (like 95%+ in my experience) you can resolve the issue by responding with a letter and perhaps attaching some documentation to back up your position.  There are a few, though, that require serious attention:

• If you are delinquent with your tax return, and the IRS is notifying you that they plan to prepare your return for you.  Even though this might seem like a great idea – FREE TAX PREP SERVICES! WHO KNEW?!? – it is really not something you want.  The IRS will prepare your return such that you owe the maximum amount you could possibly owe given your income.  They will take no deductions other than the standard deduction and give the IRS the benefit of every doubt.  If you get this notice, you must act immediately to make contact with the IRS and get your tax return prepared and submitted.
• If you receive a notice saying the IRS is assessing additional tax plus penalties and interest due to an incorrectly reported W-2 or 1099.  This happens more that you would believe.  Decimal points can elude the IRS’s scanning software and cause them to think your $750 1099-MISC is an ostensibly unreported $75,000 1099-MISC.  Clearly this is an error, but it can generate a huge tax headache if not handled promptly…which leads me to…
• If you receive a notice saying the IRS is going to levy your bank account.  If you get this notice, you have probably already seen (and likely ignored) a few previous IRS notices.  This is never the first notice.  While the IRS has the authority to levy your assets or garnish wages, it is not their first course of action.  But, by the time it gets to this point, you may find that it is more difficult (and more expensive) to resolve.
• Finally, if you receive a notice that your tax returns are under audit.  With this notice, I would seek representation (your tax preparer, usually, or a CPA or attorney if you prepared the return yourself) to assist in preparing for an audit.  But, as with all the other notices, you (and/or your representative) must respond in a timely manner.

 

IRS impersonators

While I want to stress that legitimate IRS notices should never be ignored, there are a lot of scams out there that should be either ignored (at the very least) or reported to the authorities (better).  The IRS will never make initial contact with you by telephone or email, and will never ever contact you on social media.  The IRS will not send you written correspondence asking you to verify personal information like your social security number (because they’ve got that), bank account number (they’ve already got that too), or PIN# (they don’t need that).  The IRS will not demand that you pay an assessment immediately or risk arrest/deportation/suspension of business license.  The IRS will not request payment in the form of prepaid cards or cash.  In short, if you get a robocall saying you’ve “done a fraud with IRS” and they are going to come arrest you if you don’t send them $500 in prepaid Starbucks gift cards, it’s a scammer.**

Final disclaimer

I write this as a sort of general public service/informational/entertainment-only posting.  It is not meant to cover all types of IRS correspondence, nor should it serve as a substitute for advice from a tax professional.  If you receive any notice or other correspondence from the IRS, please consult your tax adviser.

Best wishes that your Val-Pak and grocery circular come to your mailbox free of IRS notices!

 

* Call your tax adviser, but please remain calm.  If you are so hysterical that I can’t understand anything other than “OMG I’m going to prison!” I am going to wonder if I need to show up somewhere with bail.  It takes a whole lot of IRS notices and trips through courtrooms before prison becomes a legitimate concern.

** I get these calls all the time.  They are kind of hilarious, actually.  It’s like Siri or Alexa reading a script obviously written by some translation software.