IRS Notice? Here's What to Do Next

Opening your mailbox to find an envelope from the Internal Revenue Service can trigger immediate anxiety. Your heart races, your mind jumps to worst-case scenarios, and you might feel tempted to ignore it altogether. But here's the truth: most IRS notices are routine correspondence that can be resolved quickly when handled properly.

In this guide, you'll learn what different IRS notices mean, how to respond appropriately, and when professional representation can protect your interests and save you money.

Don't Panic—Most IRS Notices Are Routine

The first rule when you receive an IRS notice: don't ignore it. While it's natural to feel anxious, most IRS correspondence involves straightforward issues like math errors, missing information, or payment reminders. Only a small percentage of notices involve audits or serious disputes.

The IRS sends millions of notices each year for reasons ranging from simple clarifications to complex tax issues. Your notice might be requesting additional documentation, informing you of a balance due, or simply confirming that your return was processed. Understanding what type of notice you received is your first step toward resolution.

Take a deep breath and read the entire notice carefully. The IRS typically explains the issue clearly, what action (if any) you need to take, and the deadline for your response.

Understanding Your IRS Notice

Common Types of IRS Notices

CP2000 Notice (Underreported Income)
This notice indicates that income reported to the IRS by employers, banks, or other third parties doesn't match what you reported on your tax return. The IRS proposes changes to your return and calculates additional tax owed. You have the right to agree, disagree with an explanation, or partially agree with the proposed changes.

CP14 Notice (Balance Due)
This is a bill for unpaid taxes. The notice shows the amount you owe, including any penalties and interest that have accrued. If you can't pay the full amount immediately, payment plan options are available—but you must respond to avoid additional penalties.

CP501, CP503, CP504 (Reminder Notices)
These are escalating reminders about an unpaid balance. CP504 is particularly serious as it indicates the IRS may levy your state tax refund or other assets if you don't respond.

Letter 525 or Letter 3219 (Audit Notice)
These notices inform you that the IRS is examining your tax return. Letter 525 typically requests documentation to verify specific items on your return. Letter 3219 (Statutory Notice of Deficiency) is more serious—it proposes changes to your return and gives you 90 days to petition the U.S. Tax Court if you disagree.

CP05 or CP05A (Return Under Review)
The IRS is holding your refund while they review your return for accuracy. This doesn't necessarily mean there's a problem, but you may need to provide supporting documentation.

Letter 12C (Request for Information)
The IRS needs additional information or documentation to process your return. This is often routine and can be resolved by providing the requested documents.

Your Immediate Action Steps

Step 1: Read the Notice Thoroughly

Identify the notice type and date. The notice number appears in the upper or lower right corner of the letter. Note the date of the notice and any response deadline—these are critical for timely resolution.

Understand what the IRS is claiming. The notice will explain the issue, whether it's a discrepancy, missing information, or proposed changes to your return. Make sure you understand exactly what the IRS is saying before you respond.

Check the tax year in question. Verify that the notice references the correct tax year and that you actually filed a return for that period.

Step 2: Gather Your Documentation

Pull your tax return for the year in question. Compare what you filed with what the IRS notice states. Look for discrepancies or areas where the IRS might have incomplete information.

Collect supporting documents. Depending on the notice, you may need W-2s, 1099s, receipts, bank statements, or other records that substantiate the items on your return. Organize these documents chronologically and by category.

Review your records for accuracy. Sometimes taxpayers discover their own errors during this process. If you made a mistake, it's better to acknowledge it and work toward resolution than to dispute an accurate IRS claim.

Step 3: Determine If You Agree or Disagree

If you agree with the IRS: Follow the instructions in the notice to pay the amount due or set up a payment arrangement. If you can't pay in full, the IRS offers installment agreements and other payment options. Responding quickly can minimize additional penalties and interest.

If you disagree with the IRS: You have the right to dispute the notice. Prepare a written response explaining why you disagree, and include copies (never originals) of documents that support your position. Send your response via certified mail with return receipt requested to prove timely delivery.

If you partially agree: You can agree with some proposed changes while disputing others. Clearly explain which items you accept and which you contest, providing documentation for your disputed items.

When to Seek Professional Representation

Signs You Need a CPA or Tax Professional

The notice involves an audit or examination. Audit notices require careful navigation of IRS procedures and a thorough understanding of tax law. Professional representation ensures your rights are protected and that you present your case effectively.

You're facing significant penalties or interest. Tax professionals can negotiate penalty abatement based on reasonable cause, first-time penalty relief, or other provisions that might reduce or eliminate penalties. This expertise often saves clients thousands of dollars.

The tax issue is complex. If the notice involves business income, investment transactions, foreign accounts, or other complicated tax matters, professional guidance helps ensure accurate resolution and prevents future issues.

You don't understand the notice or what's being claimed. There's no shame in seeking help when IRS correspondence is confusing. Misunderstanding a notice can lead to missed deadlines or inappropriate responses that worsen your situation.

You're overwhelmed or anxious about dealing with the IRS. Tax disputes can be stressful. Having a professional handle IRS communication on your behalf provides peace of mind and ensures nothing falls through the cracks.

The IRS proposes changes you believe are incorrect. Disputing IRS findings requires presenting a clear, well-documented case. Tax professionals know how to structure responses, what documentation the IRS requires, and how to navigate the appeals process if necessary.

How Professional Representation Works

What a CPA Can Do for You

When you authorize a CPA or tax professional to represent you, they can communicate directly with the IRS on your behalf. This means you don't have to navigate confusing phone systems, wait on hold, or worry about saying something that might harm your case.

Your representative will:

• Review your notice and tax return to understand the full scope of the issue
• Gather and organize supporting documentation
• Prepare written responses that clearly present your position
• Communicate with IRS agents and negotiate on your behalf
• Explore penalty abatement and payment arrangement options
• Represent you in audits, appeals, or collection matters
• Ensure all deadlines are met and procedures are followed correctly

The value of representation extends beyond the immediate notice. A qualified professional can identify underlying issues that might trigger future IRS correspondence and help you implement systems to prevent problems going forward.

Understanding Your Rights as a Taxpayer

The IRS Taxpayer Bill of Rights guarantees you specific protections when dealing with tax matters. You have the right to:

• Be informed about what you need to do to comply with tax laws
• Quality service from IRS employees
• Pay no more than the correct amount of tax
• Challenge the IRS's position and be heard
• Appeal an IRS decision in an independent forum
• Finality in knowing the maximum amount of time you have to challenge the IRS's position
• Privacy regarding your tax information
• Confidentiality in your dealings with the IRS
• Retain representation by yourself or an authorized representative
• A fair and just tax system

Understanding these rights empowers you to approach IRS notices with confidence rather than fear.

Common Mistakes to Avoid

Ignoring the notice. This is the worst thing you can do. Ignoring IRS correspondence leads to additional penalties, interest, and potentially serious collection actions like wage garnishment or bank levies.

Missing the response deadline. IRS notices include specific timeframes for response. Missing these deadlines can limit your options and result in automatic assessments of proposed changes.

Providing incomplete information. When responding to an IRS notice, thoroughness matters. Incomplete responses may be rejected, requiring you to start the process over and potentially missing deadlines.

Calling the IRS without preparation. While the phone number on your notice connects you to IRS representatives, calling without understanding your situation and having documentation ready can lead to confusion or statements that complicate your case.

Sending original documents. Always send copies of supporting documents, never originals. The IRS doesn't return documents, and you need to maintain your records.

Agreeing to something you don't understand. Don't accept proposed changes or enter into agreements without fully understanding the implications. When in doubt, consult a professional before responding.

Payment Options If You Owe

If your IRS notice shows a balance due and you can't pay in full immediately, several options exist:

Short-term payment plan (120 days or less): If you can pay within 120 days, you can request a short-term extension with no setup fee. Interest and penalties continue to accrue, but this option provides breathing room.

Installment agreement: For amounts you can't pay within 120 days, monthly payment plans are available. Setup fees apply, but they're reduced if you set up automatic payments from your bank account.

Offer in Compromise: In limited circumstances where paying your full tax debt would create financial hardship, you may qualify to settle for less than the full amount owed. This option requires extensive documentation and IRS approval.

Currently Not Collectible status: If you're experiencing significant financial hardship, the IRS may temporarily suspend collection efforts. This doesn't eliminate your debt, but it provides relief while you get back on your feet.

The key is to respond and communicate with the IRS rather than ignoring the debt. Payment arrangements prevent enforced collection actions and demonstrate good faith.

Moving Forward with Confidence

Receiving an IRS notice doesn't have to derail your financial peace of mind. With the right approach—careful review, timely response, and professional guidance when needed—most tax issues can be resolved efficiently and favorably.

Remember that the IRS makes mistakes too. Their systems rely on matching documents and automated processes that sometimes flag issues incorrectly. You have every right to dispute inaccurate claims and present your case.

Proactive tax planning prevents many IRS notices. Working with a qualified CPA throughout the year ensures your returns are accurate, complete, and properly documented from the start. This investment in professional guidance typically costs far less than resolving IRS disputes after the fact.

Take Action Today

If you've received an IRS notice, don't face it alone. Chirico & Calabro, LLC specializes in representing individuals in tax disputes, penalty negotiations, and audit responses. Our experienced team understands IRS procedures, knows how to protect your rights, and works diligently to achieve the best possible outcome for your situation.

We can help you:

• Understand exactly what your IRS notice means
• Determine the best response strategy
• Gather and present supporting documentation
• Negotiate penalty abatement and payment arrangements
• Represent you in audits and appeals
• Resolve tax disputes efficiently and favorably

Don't let an IRS notice cause unnecessary stress or result in unfavorable outcomes due to missed deadlines or improper responses. Contact Chirico & Calabro, LLC today for a consultation. We'll review your notice, explain your options, and provide the expert representation you need to resolve your tax matter with confidence.

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This article is for informational purposes only and does not constitute tax, legal, or financial advice. Every situation is unique. Please consult with a qualified CPA or tax professional for guidance specific to your circumstances. Contact Chirico & Calabro, LLC to discuss your individual needs.

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