- There is a balance due
- You are due a larger or smaller refund
- There is a question about your tax return
- Income is underreported (see more below)
- There is a need to verify your identity
- Additional information is needed
- Your return has been changed by the IRS
- There are delays in processing your return
Don’t panic! Rather than ignore the IRS letter, read it and respond appropriately. There will be instructions on how to handle the problem. If you agree with the changes, there’s no need to contact the IRS. If a balance is owed, follow the instructions for sending payment. If it is a complex issue, or you disagree, contact your Fuoco Group accountant immediately to report the notice. We will help you to respond as directed. You should allow at least 30 days for a reply from the IRS. If you’re due a refund and owe no other tax or debts to collect, you should receive the refund within 6 weeks of the notice date.
If your notice or letter requires a response by a specific date, there are two main reasons you’ll want to comply:
- To minimize additional interest and penalty charges
- To preserve your appeal rights if you don’t agree
If there is a balance due, pay as much as you can, even if you can’t pay the full amount you owe. You can pay online or apply for an Online Payment Agreement or Offer in Compromise. It’s important to keep a copy of all notices or letters with your tax records. You may need these documents at a later date. The IRS may send you a second letter or notice requesting additional information or providing additional information to you, keep copies of these with your records also.
If you made a payment for which you haven’t been given credit, the IRS will request a copy of the front and back of the check as proof of the payment. If you paid by money order, you must obtain a copy of the front and back of the canceled money order from the place where you purchased the money order. If you paid using the Electronic Federal Tax Payment System, send a copy of the transaction and the confirmation number. Never send original documents!
If you received a Notice of Underreported Income or CP-2000, it means that you did not report income on your return that was reported to the IRS by a payer. Or it may be that payments, credits, and/or deductions are overstated. The CP-2000 isn’t a bill, but a proposal to adjust your income, payments, credits, and/or deductions. The adjustment may result in additional tax owed or a refund of taxes paid.
The CP-200 will show the amounts reported on your original or amended return as well as the amounts reported to the IRS by the payer. The changes the IRS proposes to the tax, credits, and/or payments will be outlined. There will either be an increase or decrease to your tax liability based on the payer documentation.
You can authorize your Fuoco Group accountant to contact the IRS on your behalf concerning the CP-200 notice in the space provided on the response form. We will then review the information carefully to verify its accuracy and assist you with your response regarding the changes the IRS is proposing. We will send a statement and supporting documentation for consideration, explaining why we disagree.
The proposed changes will generally show interest calculated 30 days from the date on the notice. If you pay the proposed amount within 30 days, that payment will stop additional interest from accruing as well as certain penalties that may apply if payment is made after the 30 day period. If you make a partial payment, or you send the signed consent without payment, the IRS will bill you for the amount due plus additional penalties and/or interest charges. If you’re unable to pay, there are payment options, and you may request a payment arrangement to pay the amount you owe.
An amended return is not always needed. Once the IRS receives a response, corrections will be made for you. If the same type of error occurred in any other tax years, we may advise to file an amended return for those years in order to prevent or reduce the accrual of penalties.
The IRS makes no secret about how strict the collection process is for taxes owed.
If you don’t pay your tax in full when you file your tax return, you’ll receive a bill for the amount you owe. This bill starts the collection process, which continues until your account is satisfied or until the IRS can no longer legally collect the tax. If a notice has been sent and the IRS does not hear from you within the 30 or 60-day period, they will issue a statutory notice of deficiency and additional interest and penalties will be charged.
The unpaid balance is subject to interest that compounds daily and a monthly late payment penalty. It’s in your best interest to pay your tax liability in full as soon as you can to minimize the penalty and interest charges. You may have to consider methods of financing full payment of your taxes. Often the rate and any applicable fees your credit card company or bank charges are lower than the combination of interest and penalties imposed by the Internal Revenue Code.
As aforementioned, the IRS may be able to offer you an installment agreement. FYI, there’s a user fee to set up a monthly installment agreement. You may arrange to have the payment directly debited from your bank account which will minimize this. Interest and late payment penalties will continue to accrue while you make installment payments.
A last resort is an Offer in Compromise, an agreement between a taxpayer and the IRS that resolves a taxpayer’s tax liability by payment of an agreed on reduced amount. Before it can be considered, you must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
If the IRS determines that you can’t pay any of your tax debt due to a financial hardship, the IRS may temporarily delay collection until your financial condition improves. But the debt does not go away. It means the IRS has determined you can’t afford to pay the debt at this time. Be aware there are some difficult hoops to jump through to qualify.
If you don’t respond or contact the IRS, they will take action to collect the taxes by:
- Filing a Notice of Federal Tax Lien
- Serving a Notice of Levy on wages, bank accounts, social security benefits, even retirement income
- Seizing assets or your car, boat, or real estate and selling the property to satisfy the tax debt
- Offsetting a refund to which you’re entitled
A federal tax lien is a legal claim to your property. The federal tax lien arises automatically when you fail to pay in full the taxes that have been assessed against you within ten days after the IRS sends the first notice of taxes owed and demand for payment. The IRS may also file a Notice of Federal Tax Lien in the public records, which publicly notifies your creditors that the IRS has a claim against all your property. The lien may appear on your credit report and may harm your credit rating. The IRS generally can’t release the lien until the tax, penalty, interest, and recording fees are paid in full, or until the IRS may no longer legally collect the tax.
You may call the IRS at 800-829-1040 to discuss any IRS bill. Have the bill and your records with you when you call. If the notice or letter looks suspicious call the same number. The IRS will never ask taxpayers for personal information via e-mail or social media.
Contact us: If you need an advocate, your Fuoco Group accountant can assist with the process, and contact the IRS on your behalf to resolve any issues in a timely manner before things escalate and cost you more.
