If you just received an envelope from the IRS in your mailbox, you’re probably not happily singing the “We just got a letter!” song like Steve from Blues Clues.
You’re probably feeling concerned or even scared. I have even had clients bring me unopened envelopes because they were afraid to open them.
Over the years, I’ve developed a rule of thumb about IRS letters: the thinner the envelope, the better it is. The thicker it is, the worse it is. This rule of thumb is not 100% accurate, but it seems to apply to most taxpayers.
Regardless of your envelope’s thickness, opening IRS letters doesn’t have to be taxing!
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What Should I Do With an IRS letter?
Letters and notices from the IRS vary considerably. The IRS uses a huge identification system with different numbers and titles to categorize letters and notices.
We’ll talk about some of the letters later, but first let’s discuss what you should do when you get a letter:
- Determine the reason the letter was sent out and consider whether or not it is a legitimate letter. IRS letters have letter numbers, provide a process for questions and appeals and do not threaten jail time. They also do not demand payment using a specific method.
- Determine if you need to respond. Some letters provide specific instructions and require a response. Others state no response is required. Some indicate that you only need to respond if you disagree.
- Note any deadline for response. If there is a deadline and you do not respond by that deadline, the process will proceed to the next step with or without you. Responding may prevent further action, minimize penalties and interest, and preserve certain appeal rights. Make sure you reply using one of the methods the IRS indicated in the letter. In some cases, the appropriate response may be a tax return amendment.
- Talk to someone if you have questions. Some letters have specific instructions for requesting additional information. If you have questions, you can call the IRS at 1-800-829-1040. You can also seek help from the Taxpayer Advocate Service, however you should try resolving whatever you can on your own first and only contact the taxpayer advocates if you have issues.
- Determine if you need tax professional assistance. Consider your experience and the complexity of what the letter addresses. If you don’t feel comfortable handling it on your own, seek out professional assistance. Service members and military families can contact the free tax consultants at Military OneSource to see if they can provide any assistance. Or, you can start with the IRS credentialed tax professional directory.
Do not ignore IRS letters. If the IRS is asking questions or if they say you owe money, there is a sequence of steps they will follow, and it doesn’t get better the further along the process gets.
Most IRS letters are not a crisis. If action is needed, you typically have time to deal with the issue. The IRS does try to work with taxpayers to find reasonable solutions.
Why Would I Get a Letter From the IRS?
In general, there are three kinds of IRS letters: benign ones, information requests and the ones you don’t want.
In 2020 and 2021, many taxpayers received their first informational letters or notices from the IRS. These types of letters typically don’t require a response. Still, I recommend retaining all IRS letters and notices – especially ones that might be useful in completing tax returns or dealing with tax problems.
Here are some examples of benign IRS letters and notices::
- Letter 6149: If you received Advanced Child Tax Credit Payments, you will receive Letter 6149 in January. This letter will provide you with the total amount of Advanced Child Tax Credit Payments you received in 2021. Retain this letter with your tax documents for your tax return preparation.
- Letter 6475: You will receive letter 6475 if you received a third stimulus payment (or, what the IRS calls a third economic impact payment). This letter will indicate how much money you received . Retain this letter with your tax documents for your tax return preparation.
- CP302: You will receive a CP302 notice if someone accessed your federal tax return information through the Department of Education’s Free Application for Federal Student Aid (FAFSA) website or the Income-Driven Repayment (IDR) plans online application. If this was you or someone you authorized on your behalf, then no further action is required. If it was not, then you should call 1-800-908-4490, ext. 549.
IRS Letters That Ask for More Information
Sometimes the IRS needs more information to process returns or before proceeding with negative actions.
Here are two examples of these types of letters:
- Letter 12C: The IRS issues letter 12C if your tax return is missing form 8962. Usually, this means that a taxpayer receiving subsidized healthcare through a healthcare exchange did not include information from Form 1095-A on their tax return. If you receive this letter, then you have to complete Form 8962 and send it to the IRS using a method indicated in the letter.
- Letter 5071C: This letter will ask you to verify your identity through an online process before the IRS finishes processing your tax return. If you receive this letter, follow the instructions in the letter. If you have not filed a tax return then you may be a victim of tax identity theft. Contact the IRS for further guidance.
The IRS Letters You Don’t Want
The important thing to remember about a bad IRS letter is that almost all of them require action on your part. You won’t have to take any action if the IRS is telling you that it adjusted your tax refund.
If you receive the letter before the IRS finishes processing your tax return and the adjustment doesn’t cause you to owe money, you don’t have to take further action. If you disagree with the adjustment, the letter will provide you with an appeal process.
For example, if the IRS disagrees with your tax return calculation for the Recovery Rebate Credit, they may adjust your tax return and send you one of the following letters: CP10, CP11, CP12, CP13, CP16, CP23, CP24, or CP25.
IRS Notice CP2000
IRS Notice CP2000 is often the first letter a taxpayer receives about tax return discrepancies. This letter informs taxpayers of proposed changes to their tax returns based on information provided by third parties.
Usually, this information is income that increases the amount of taxes you owe, so the IRS requests payment.
If you don’t agree with the IRS determination, your letter should outline directions to appeal the decision.
Sometimes it’s as simple as missing information from a W-2 on your tax return.
If you are certain the IRS is correct and it is a relatively small amount, then I recommend just paying the bill, which will include penalties and interest in most cases.
However, if you believe they are wrong, you may need to develop a response or file an amendment.
If they are correct, but they’re asking you to pay a lot of money, do a detailed review of the tax return and original documents to see if any errors or missed deductions left money on the table that could offset your increased tax liability.
I have had new clients come in with a letter requesting payment. I reviewed their tax return, and instead of owing the IRS, they ended up receiving a bigger refund because of errors or deductions that I found for them.
So, when you get a letter stating you owe money to the IRS, determine if your experience and the complexity of the issue warrant hiring a tax professional.
CP2000 is an audit letter. Most IRS audits are paper audits, meaning that the IRS will send a letter first. The taxpayer can initiate contact by mail, fax or phone.
There are many types of audit letters. Sometimes IRS computer systems generate these letters when they flag a tax return. Often, an initial audit letter just asks for some proof and documentation.
For example, for Earned Income Tax Credit (EITC), the IRS may request that you provide documentation proving the children claimed on your tax return actually live in your household.
If you receive an audit letter, read it carefully to make sure you understand it. If you don’t feel like it’s something you can handle on your own, seek professional assistance.
There is an order of receipt for collection letters.
If you receive the first letter, CP14 Notice of Unpaid Taxes, it means you should have already known you owe taxes. Maybe you filed your tax return and you owed but did not pay, or maybe you received the CP2000 and didn’t respond or pay.
If you receive CP501 (Reminder of Unpaid Taxes), CP503 (Second Reminder of Unpaid Taxes), CP504 (Notice of Intent to Levy) or a Final Notice (often a Letter 1058 or LT 11), then you have had multiple notifications.
The IRS likes to get paid, and they don’t forget tax debts.
Ignoring tax debt just causes it to increase through penalties and interest.
But, the IRS accepts installment plans and sometimes makes special deals. If you are overwhelmed by the process or the circumstances, you can seek assistance from the Taxpayer Advocate Service or work with a tax professional.
I suspect that after reading this article, you still won’t sing and dance when you find an IRS letter in your mailbox. But, I hope you can now open envelopes from the IRS without fear or panic.