The IRS’s job of making sure everyone pays their taxes is no easier than collecting and reporting all your information without a single mistake. Unfortunately, the consequences of failure to report, arrears, or debt are far more serious than many people realize. Any error, large or small, barely goes unnoticed by the tax authorities. Errors in your file generally lead to you becoming a recipient of the dreaded tax authority notices.
Although many assessments are innocent tax-related warnings that require immediate attention, ignoring or postponing them can have serious consequences. These ordinary IRS notices are no cause for panic, but we will explain what they mean and how to deal with them.
5 Common IRS Notices
If you have received a CP501 or CP502 notification, this means that you have an overdue IRS balance. You should find the following information in this letter.
- The amount you owe
- The year from which the tax debt is due
- The proposed interest rates you can expect
- The due date for payment
Failure to pay could result in confiscation of property, seizure of paychecks, a lien on future tax refunds or the levying of taxes on your property. Depending on your debts, the IRS could continue to collect taxes for many years. If you are in a difficult financial situation, consider hiring a tax expert to negotiate the debt or help you find a more affordable payment arrangement.
2. Letter 12C
If you have received a 12C letter in the mail, you can be sure that the IRS only wants a little clarification to properly assess and process your tax return. This can mean anything from missing forms to support your filings to simply checking your income. The best way to process a 12C letter is to respond as soon as possible. Even if you disagree with the claims in the letter, you can write back a letter explaining in detail why you think the information is inaccurate.
Letter 12C also includes a fax number to facilitate quick correspondence. Be sure to include a copy of the letter with your reply. If you are replying by post, make sure you send by certified mail to receive proof of delivery.
CP01 messages are sent to taxpayers whose accounts have been attacked by identity thieves. This notification requires no action on the part of the recipient, so you can sleep easy knowing that the IRS is taking care of every funky fraudulent transaction. It is then the responsibility of the IRS to monitor your account for unusual activity. This notice should also urge you to handle all your confidential financial documents with care. Be careful when destroying or deleting important information that could later be used to investigate a fraud case.
4. Letter 2205
If you become the recipient of a letter 2205, you have been selected for an IRS audit. Audits are issued to taxpayers who may not have reported completely correct information. This is particularly common for professionals who have a fruitful part-time job or work from home. In this notification, you will find the name of the auditor, his telephone number, and the location of his office. The letter also contains all information about what exactly is being considered for a thorough examination. If the IRS has not included a summary of the issues at the end of letter 2205, the IRS will send you Form 4564 or 886A for further questioning. Be sure to respond within 7 days to avoid penalties or additional taxes.
5. Letter 3219
If you receive a letter 3219, or a letter of deficiency, from the IRS, it means that you owe additional taxes. These are usually sent to taxpayers who have had the IRS suggest adjustments to their returns that have resulted in additional tax liabilities. There are three ways to process this letter: contest the taxes, appeal the penalties, or make arrangements to pay the amount due. The recipients of letter 3219 have 90 days to respond. Failure to reply to the letter will result in the loss of your right to challenge additional taxes.
5. Letter 602
Letter 6002 is sent to taxpayers who have failed to indicate whether or not they have health insurance when they return. This quick-fix notification from the IRS is easily remedied by contacting the IRS as soon as possible. The Affordable Care Act requires health insurance, but those who qualify for exemption must fill out a Form 8965 to complete their application. If you did not qualify for an exemption and were not covered by health insurance for the tax year, you must calculate a co-responsibility payment.