There it is. In the mailbox just over there. Your hands are sweaty, and your pulse picks up. Do you open it? Do you leave it on the counter and walk away? Do you dump it in the trash and not give it a second thought? No matter your course of action, the IRS has sent you a notice and you are now looking at what seems to be a secret code. Lucky for you, I love figuring out puzzles and I have some tricks for you.
After the rush of tax season and the initial round of notices that go out for specific tax return matters such as incomplete forms, missing schedules, and additional documentation to process we reach “notice season.” This is when the IRS begins to match data from tax returns to what was reported to the Social Security Administration and dig a little bit deeper into tax returns.
If you are lucky enough to receive one of these beloved notices, the first thing that you need to do is check the Notice Number in the upper right-hand corner. Each notice number covers a different topic. For example, a CP2000 Notice will be generated when the income that was reported on your tax return does not match what was received from other reporting sources.
This is the most common type of notice that we see and generally shows up in the fall of the following year. Most of these notices show up and get people’s hearts racing with large amounts of additional tax due. The IRS will list on this form the amount of money that was not included on the tax return and refigure the return based on that information. Depending on the type of income, this maybe incomplete information and the additional tax due is substantially less than what is listed on the notice.
The most important thing to remember is you receive a CP2000 notice is that it is computer generated. There has not been a review or audit of your tax return, the information just did not give with what the computer expected to see based on other input information.
This notice contains the most detailed information regarding the issue at hand than any subsequent notice. This is the notice we want to see to help sort out the problem.
The next notice you will receive is a CP14 that just reminds you that a payment is due and after 30 days will incur additional penalty and interest. When you get the CP504 is usually when we hear from you. This notice is a final intent to levy your bank account and assets.
When a CP504 is issued, it usually means that you have ignored previous CP14 notices and the IRS is looking to take collection action. This can happen in several different ways. First, they can place a levy on your bank account which requires the bank to withdraw and hold the balance that is due to the IRS. Then, they will typically levy your wages through your employer leaving you with a very small amount of wages to live on. Finally, you will get the opportunity to meet a local IRS Revenue Officer when they knock on your front door.
Trust me when I say the IRS does not want your house and they do not want to lock you up in jail. All they want is for you to communicate with them and get your taxes paid. That is where I come in! As an Enrolled Agent, I am authorized to work with the IRS on your behalf on these matters. Bring me your notices and let’s work together to get back on track, preferably before you get a knock on the door.
My Free Advice this Friday is to not ignore the notices! Communication is the key to successfully navigating the secret codes of the IRS.
Check back next week for tips for verifying your tax payments before you file.