Now that most tax refunds are deposited directly into taxpayers’ bank accounts, the dream of opening your mailbox and finding an IRS refund check is all but a thing of the past. However, since the IRS now does most of its auditing through correspondence, an IRS letter can likely increase your heart rate and, in some cases, ruin your day.
When the IRS thinks it detects a potential issue with your tax return, it will contact you via U.S. mail; this is done with a CP-series notice. Please note that the IRS’s first contact about tax delinquency or discrepancy will never be a phone call or email. Such calls and emails are a common tool of scammers; simply hang up the phone or delete the email if you get one. If you are concerned about the validity of a given message, please call our office.
Most commonly, CP notices describe the proposed tax due, as well as any interest or penalties. The notice will also explain the examination process and describe how you can respond.
These automated notices are sent out year-round, and they are quite common. As the IRS tries to close the tax revenue gap, it has become more aggressive in its collection efforts. In addition, as many taxpayers now use low-quality tax mills or do-it-yourself software, the number of notices sent because of preparer error has increased. Missed checkboxes, misunderstandings of available credits, and overlooked income all add up to more errors.
The IRS's first step in this automated process involves matching what you reported on your tax return to the data that third parties (e.g., employers, banks, and brokers) reported. When this information does not agree, the automated collection effort begins.
These notices often include errors. However, you need to respond before the deadline specified on the notice (usually 30 days) or face significant repercussions. The notice may even be related to suspected ID theft. For instance, someone may have gained access to your tax ID (or that of your spouse or one of your dependents) and tried to file a return using the stolen ID. The first step is to determine which type of notice you have received.
A CP2000 notice is very different from the other CP notices (which deal with issues like identify theft, audits, and the earned income credit). The CP2000 notice includes a proposed—almost always unfavorable—change to your tax return, allowing you to dispute the proposed change. Procrastinating or ignoring this notice will only cause the IRS to ratchet up its collection efforts, which in turn will make it more difficult for you to dispute the proposed adjustment.
Sometimes, the IRS will be correct. You may have overlooked a capital gain or income from a second job. It is also possible that the IRS has caught someone else using your SSN to work or otherwise stealing your identity. Quite frequently, however, the IRS is incorrect, simply because its software isn’t sophisticated enough to pick up all the information that you report on the schedules attached to your return.
These notices of proposed changes will also include penalties and interest. Even if you do owe the tax, our office may be able to help you get the penalties and interest abated for due cause.