How to Handle IRS Notices

Is this your situation? Just when you thought tax season was over, you receive a notice from the IRS. Don't panic -- you're not alone. The IRS sends millions of notices and letters out each year. Many are computer-generated because these days the IRS relies less on employees to get directly involved in issues including collections. Many state and local governments are following suit and sending out more notices to taxpayers.

Note: Tax notices are sent to mailboxes through the U.S. Postal Service. The IRS never contacts taxpayers via telephone, e-mail, text message or social media to ask for personal or financial information. An IRS solicitation in any format other than a letter sent through the U.S. Postal Service could be a ploy to steal your personal information or access your financial records.

Making IRS notices clear and efficient is one of the agency's top priorities. Starting in 2010, the IRS began redesigning notices to look less like legal documents. The language is generally easier to understand than in the past, but it's natural to worry when you receive a notice. If you receive a notice and want more information about how to respond, contact one of our tax professionals right away.

More Notices, Fewer Agents

The IRS ramped up its collection efforts after a 2001 study revealed that a $345 billion "tax gap" existed between the amount owed by taxpayers and the amount the IRS actually collected. The study pinpointed a complex and ever-changing tax code that is ripe for abuse.

IRS enforcement staffing levels have decreased in recent years. In 2013, there were roughly 14 percent fewer enforcement officers and agents than in 2010. Many IRS notices are computer-generated. In fact, when you open a notice from the IRS, you might be the first human being to read it.

Many notices are routine and can be resolved with a few simple steps. For example, you may need to file an additional tax form. The IRS may have been unable to make a direct deposit for your refund and, instead, is sending a refund check. Or you might have missed a small amount of interest from a bank account. With more than 100 types of federal tax notices (see "Common IRS Notices," below), the possibilities for IRS inquiry are endless.

Case in Point: CP2000 Notices

One of the most common IRS notices is CP2000, a notice of proposed adjustment for underpayment or overpayment. Receiving one isn't always bad news -- some of these notices even propose a refund.

Here's what happens behind the scenes. IRS computers compare information reported by employers, banks, businesses and other payers on Forms W-2, 1098, and 1099 with personal information, income and deductions you report on your income tax return. If you fail to report any income, payments, or credits (or if you overstate certain deductions) on an income tax return, you may receive a CP2000 notice. It is not a bill. It informs you of the proposed adjustments to income, payments, credits or deductions. This may result in additional tax owed or a refund of taxes paid.

The IRS also compares personal information, such as the names, addresses and Social Security numbers of you, your spouse and your dependents. Inconsistencies between personal information on Forms W-2, 1098, and 1099, and your personal tax return also could result in an IRS notice.

A CP2000 notice will show the amounts you reported on your original or amended return, the amounts reported to the IRS by the payer, and the proposed adjustments by the IRS. The notice also provides the name of the payer, the payer's ID number, the type of document that was issued (such as a W-2 or 1099), and the tax identification number of the person to whom the document was issued. Based on payer documentation, the notice proposes either an increase or decrease in your tax liability. Be sure that you review this information carefully to verify its accuracy.

These notices are typically computer-generated and may be erroneous. For example, one client received a CP2000 notice because her 1099-INT didn't match up with information reported on her tax return. The 1099-INT used the bank's full name. The tax return used an abbreviated variation of the bank's name. The IRS computer didn't know the banks were one in the same.

If you end up owing additional federal taxes after receiving a CP2000, consider the possibility that you may also owe additional state and local taxes.

Handling Your Notice

The IRS recently issued tips on how to handle notices. Here are some important points to bear in mind:

Follow directions. Each notice relates to a specific issue and instructs you about what to do. If the notice requires a response, only address the specific questions the letter asks. If you have other tax issues you'd like to discuss with the IRS, send a separate letter.

If you agree with the notice, you usually don't need to reply unless it gives you other instructions or you need to make a payment. Pay close attention to the proper mailing address for your response and deadlines. Always keep copies of any correspondence with the IRS. You may need to refer to it later.

Ignoring an IRS response will not make it go away. Generally, if you receive a notice that you owe additional taxes, the IRS perceives failure to respond as admission of underpayment, starting the collections process.

Stand your ground. You may receive a notice stating that the IRS has made a change or correction to your tax return. Review the information and compare it with your original return. If you don't agree with the notice, you still need to respond typically within 30 days (or 60 days if you live outside the United States). Don't sign the notice and never pay money that you don't think you owe just to get the IRS off your back.

You have the right to dispute the notice. Contact your tax adviser about composing a letter to explain why you disagree, including any information or documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Expect to wait at least 30 days -- often 60 days or longer -- for a response from the IRS.

Pay promptly to minimize interest charges and penalties. You will be sent a bill from the IRS, if you owe additional taxes. Pay balances due to the IRS promptly, because interest and penalties quickly add up. Interest will be charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined quarterly and equals the federal short-term rate plus 3 percent. Interest compounds daily.

If you file a return but don't pay all amounts shown as due on time, you will generally have to pay a late payment penalty of 0.5 percent for each month (or part of a month) up to a maximum of 25 percent, on the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. The 0.5 percent rate increases to 1 percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy. For individuals who file by the return due date, the 0.5 percent rate decreases to 0.25 percent for any month in which an installment agreement is in effect.

If you owe tax and don't file on time, the total failure to file penalty is usually 5 percent of the tax owed for each month (or part of a month) that your return is late, up to five months. If your return is more than 60 days late, the minimum penalty for late filing is the lesser of $135 or 100 percent of the tax owed.

The penalties for filing and paying late may be abated if you have reasonable cause and the failure was not due to willful neglect. In addition, making a late payment as soon as you are able may help to establish that your initial failure to pay was due to reasonable cause and not willful neglect. Generally, interest charges are not abated; they continue to accrue until all assessed tax, penalties, and interest are paid in full.

Consult with your Kruggel Lawton tax professionals. Taxpayers may be able to rectify minor IRS issues, such as an inaccurate address, account number or Social Security number. But other notices are better left to a tax professional. Response forms typically allow you to authorize someone other than yourself to contact the IRS concerning notices. Never hesitate to contact us if you're uncertain about how to handle a letter from the IRS.

Common IRS Notices

IRS notices cover specific issues about an account or tax return. Here is a list of some common IRS notices (there are more than 100) and the reasons they are issued. For a full list, visit

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  1. Angela B

    Hello I received a cp2000 it states I can send in an schedule a to itemize deductions that may reduce my tax debt also i need to send in a form 9465 to make payments for the debt. Do I just send all of that in with the form they sent me to acknowledge the debt. Thank you

    • Kruggel Lawton CPAs

      Hi Angela,
      The CP2000 you received should state next steps for your situation. If instructions are unclear, we recommend calling the phone number listed in the top corner of the letter and clarifying with an IRS agent.

  2. Sam

    Hi my name is Sam and me and my wife recently recieved a cp2000 for underpayment of federal tax from 2015. Can my refund this year be set off because of this?

    • Kruggel Lawton CPAs

      Hi Sam,
      If you have a balance due from a prior tax year, the IRS will offset this year’s refund to pay off the balance due from before. If there are funds remaining, you will receive a refund.

      If you’ve already filed and think your refund may be on its way soon, you can wait to see if you get the full amount and then pay the IRS the rest that’s due. If you haven’t filed for 2016 yet or you believe it may be a while before you receive your refund, it’s probably best to pay the back taxes to avoid further penalties and interest from accruing. As always, you can call the number listed on your CP2000 to discuss your options with the IRS.

  3. Darren Chaney

    I want to try and settle my back taxes with IRS. I receently had installment agreement, but it defaulted when I lost my job back in March 2016. I acquired more employment, but at half the salary I was making. I have received CP523 letters from IRS. Can you help me? If so, what will I owe you?

    • Kruggel Lawton CPAs

      Hi Darren,
      We sent you an email with some more info on how we may be able to help you.

  4. Suzanne A

    On both mailing addresses that Fogle posted above, you can’t google to verify them. I also do not have all the information provided on my CP2000 mentioned, as in past amounts posted, etc. I wondered if it’s bogus. Calling the IRS is a big waiting process to get a real person.

    • Kruggel Lawton CPAs

      Hi Suzanne,
      If you’d like to email us a PDF copy of your CP2000, we can take a look and help determine if it is indeed valid correspondence from the IRS.

  5. Richard E Fogle

    For a CP2000 letter I received from IRS ,
    a letter from my tax consultant was sent to IRS promptly explaining the situation. I just received a response from IRS back. I agree with the IRS and the payment I now owe of $263 but am very unsure what address to send the check. One is to: IRS PO Box 145577 Cincinnati OH 45250-5577. The other is IRS PO Box 9012 Holtsville NY 11742 which was the address from which the letter was sent. Please advise so I can rest assured my payment is properly received.

    • Kruggel Lawton CPAs

      Hi Richard,
      We would recommend calling the 1-800, 1-866 or 1-888 number listed in the upper right hand corner of your notice. The IRS agent will then be able to confirm which address correspondence should be sent to. Please let us know if you have any additional questions and happy tax season!

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