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IRS Notices

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IRS Notice: Do Not Panic, but Do Not Ignore!

It is natural to panic a bit when you open your mailbox and find that IRS notice. The IRS has tremendous power and is able to use it in ways that deeply impact our lives. However, not all IRS notices mean you are under audit. In fact, many IRS notices are easily resolved by simply providing correct or additional information to the IRS.

In any event, do not ignore the notice. The issue will not go away on its own and the consequences may worsen if ignored. Many notices only provide a limited opportunity to respond. If you fail to respond within that window, you may lose the opportunity to dispute the tax before having to pay the amount in full. Once that happens, you will have to pay the entire tax and then file a federal lawsuit to dispute the liability. Properly responding to the notice in the time permitted is generally the best and least expensive approach.

Read the IRS Notice and Follow the Directions Carefully

Each IRS notice deals with a single tax period. Notices regarding an individual tax return will span an entire calendar year. For payroll taxes, it could be a three-month calendar quarter or an entire calendar year. Begin by identifying the tax period at issue and determine the specific information requested or disputed. Focus your response on the specific information requested with respect to that limited tax period.

If you agree with the changes or corrections, you generally do not have to do anything, unless the change requires you to make a payment. In that case, make the payment promptly to avoid additional penalties and interest. If you dispute the changes, you must respond within 30 days (60 days if you are outside of the U.S.). Plan and document your response carefully. Be sure to keep your own organized copies of everything you provide to the IRS in response to the notice. If the tax dispute escalates, it is imperative that we are able to identify all of the documents, information, and evidence provided to the IRS. If you are required to mail in documents within a certain time frame, be sure to mail the response by certified mail, return receipt requested with a post office postmark, so that you can prove compliance if necessary.

Don’t Pay a Tax You Do Not Owe

If you disagree with the changes in an IRS notice, you have the right to dispute the determination. Don’t sign the notice, and certainly do not pay any amounts disputed just to make it go away.

The type of notice you receive will dictate the response required. Contact the Colorado Springs tax professionals and attorneys at the Business Law Group to discuss your options, so you can make an informed decision on how to proceed. We can help you identify the documents, records, and legal arguments needed to support your response. With your assistance, the Business Law Group can help you dispute and resolve an unjustified tax bill.

We Can Expect More IRS Notices

With additional funding being provided to the IRS as of recent years to catch up with Covid-19 delays, they have increased their budgeting for hiring, and have expressed the intention of hiring more employees to address their collection and processing efforts. The IRS is likely to dramatically increase its collection efforts and we can expect the IRS to continue to rely on these automatic notices as a significant part of its collection activities.

List of Common IRS Notices

  • CP01– Notice to victims of identity theft.
  • CP11– The IRS has made changes to correct a miscalculation on your return, resulting in a tax liability.
  • CP12– The IRS has made changes to correct a miscalculation on your return.
  • CP14– Notice of unpaid balance, usually the first step in collections.
  • CP18– The IRS has denied or corrected a deduction on your return, reducing your tax refund.
  • CP31– Your refund check was returned to the IRS. You need to update your address.
  • CP49– Your tax refund has been held and applied to outstanding tax liabilities.
  • CP90C and CP297C– Notice of intent to seize property, and right to a collection due process hearing. Wages and bank accounts are usually the first assets targeted.
  • CP91 and CP298 – Notice of intent to levy Social Security benefits, and right to a collection due process hearing.
  • CP161– Notice of unpaid balance and request for payment.
  • CP501– First Notice from Automated Collection System regarding an outstanding balance. This is just the first notice. All subsequent notices will be more threatening.
  • CP504– Notice of intent to levy. This is an urgent warning that the IRS will begin seizing property after 30 days. Bank accounts and wages are usually the first assets targeted.
  • CP523– Notice of default on an Installment Agreement.
  • CP668 Y(c)– Notice of federal tax lien. The IRS has filed a tax lien against your property.
  • CP668 A(c)– Notice federal bank levy. The IRS has levied and seized the funds in your bank account.
  • CP668 Y(c)– Notice of federal wage garnishment. The IRS can seize a significant portion of your wages.
  • CP2000– Notice that the information on your return does not match the information in the IRS’s file.

You Don't Have To Do This Alone!

Call the Colorado Tax Professionals and Attorneys at the Business Law Group at (719) 355-8840. This content does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.