As you make your evening stroll to the mailbox to pick up today’s round of bills, flyers, and the occasional wedding invitation, your heart sinks as you catch a glimpse of the return address and those three dreaded letters: I-R-S.
Your first instinct is probably going to be to panic. For those of us not stashing away millions in a discreet island location, a notice from the IRS could mean a variety of things. The first step is simple – read the letter. The first notice will give you the who, what, when, where, and why of the problem: who the notice is for, what tax year and form the notice is about, when to respond, where to respond, and why they’re contacting you. To assist taxpayers, the IRS has posted a list of the most common notices and their descriptions on their website (www.IRS.gov). Most commonly, the IRS wants you to prove something – prove that you filed your return and paid your tax on time, prove that you are allowed to take that deduction or credit, prove that you reported all of your income, or prove that you didn’t claim your dog as a dependent. With the increase in fraudulent returns being filed, they may even want you to prove your identity.
Once you’ve read the letter, you can decide whether you want to try to handle it yourself or enlist the assistance of your CPA. I would encourage you to at least consult your CPA. We’ve spent years dealing with the IRS and have learned a few tricks here and there that could save you time and heartache. If you are confident in your understanding of the issue and you have the appropriate supporting records, you can certainly respond on your own. We have found that it is best to correspond with the IRS in writing, via certified mail, because it creates a documentation trail. If you do call the phone number on the notice, keep records of the agent’s identification number and a summary of what was said. And remember the old saying – you catch more flies with honey than vinegar.
Often a short response from you or your CPA is all that is needed to resolve an issue. Missing the deadline to respond, however, can turn a simple task into quite the unwanted situation. At the end of the day, your very best defense when it comes to an IRS notice is thorough and accurate recordkeeping.