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Standing Up To The
IRS
by Ginita Wall, CPA, CFP
 When you
receive a plain brown envelope marked "Official US
Business" from the Internal Revenue Service, it’s enough to strike terror in
your heart.
Your first instinct to the deficiency notice inside might be to pay them whatever they
want, but don’t do it.
There are four common notices that you might receive from the IRS.
The Math-Error Notice tells you that you made a mathematical
error on your tax return, or you used the wrong tax tables. But
those notices often result from keypunch errors at the IRS, resulting
in a correct return appearing to be erroneous.
The Late-Filing Notice is generated if you miss the tax-filing
deadline, which is April 15 for most returns. If you received
an extension for filing, the IRS may not be correct when they
assess penalties for late filing.
The CP-2000 Matching Notice is a notice that the 1099
forms and W-2s filed by your employer, bank, broker, and mutual
funds don’t match the information on your tax return. But
this notice can result if you reported the income elsewhere on
your tax return, for example, commissions reported as "other
income" rather than "business income." It can also
result if the payer has used your social security number in error.
The Estimated Tax Notice assesses a penalty if your tax
payments during the year are less than 90% of the total tax due
on your return. But there are several exceptions to the estimated
tax rules, for example, generally you are exempt from penalty
if you paid at least as much in estimated tax this year as last
year’s total tax bill. If you qualify for one of those exceptions,
it’s up to you to notify the IRS that their assessment notice
is wrong.
Almost half the notices sent by the IRS are in error, at least in part. So don’t
panic when the IRS writes to you. Read the notice carefully, then follow these five simple
rules.
Rule 1: Don’t hide your head in the sand
Do not ignore the IRS – they won’t go away. The IRS computer is programmed to
send you a notice every few weeks. Those notices will escalate, each one more threatening,
until finally they put a lien on your bank accounts.
Rule 2: Sooner is better
The only way to stop the IRS notices is to respond, and the sooner the better. If you
don’t respond within ten days, you’ll get another notice. If you telephone, be
prepared for busy signals or a long wait on hold. And to be sure you have a record of your
response, follow that phone call up with a letter.
Rule 3: Keep it simple, stupid
The IRS employees are overworked and not interested in reading a long, verbose explanation
of your situation. Write your letter simple, grade-school terms, sticking to the facts and
providing all the documentation needed.
Rule 4: Stay the course.
If at first you don’t succeed, try, try again. That applies
in spades to dealing with the IRS. Your initial response may cross
in the mail with the second IRS notice, so send them another letter
with another copy of all necessary documentation. If you receive
a third notice, it’s time to telephone the Problem Resolutions
Office. Get the name of the person you talk to, and send them
a copy of your correspondence and documentation.
Rule 5: Call out the big guns if necessary
If you follow these rules, but the dispute still escalates, it’s
time to pay for some professional help. A tax adviser who works
with the IRS on a regular basis can help you resolve your problems
if you can’t get the IRS to understand and respond favorably
to your communications.
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