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How to Respond to an IRS Notice

Many taxpayers freeze up when they receive a notice from the IRS in the mail.  It is common for taxpayers to leave IRS mail sitting on the kitchen counter or tucked away in a drawer for weeks and months.

As with many things in life, your worst fears are not likely to ever come to pass.  In his book, “How to Stop Worrying and Start Living,” Dale Carnegie explains that “99% of the things people worry about never happen.”  People struggling with tax debts commonly replay scenarios in their mind where the IRS comes to their home or place of business, puts them in handcuffs, and perp-walks them from the premises.  Business owners imagine armed IRS personnel with badges coming to their place of business, sending everyone home, locking up the doors, and hauling away files in large utility vehicles.  It is important to know that none of these scenarios are at all likely to happen.

If you have ever indulged in this kind of thinking, or ever stuffed an IRS mailer away somewhere it was likely to never see the light of day again, you need to read this article.  Not every letter you receive from the IRS is bad news, but every letter you receive from the IRS does give you an opportunity to solve your tax problems that you will miss out on if you do not act.

Dale Carnegie, in the same Chapter – Chapter 8 – of his seminal book on worry, provides the medicine that can solve most worry problems.  The simple mantra you need to know is that, “By the Law of Averages, it Won’t Happen.”  Meaning, odds are you will not go to prison for back taxes, odds are you will not have your business shut down; odds are you will get through your tax troubles and move on to better times.  It is just a question of when you will take your head out of the sand and start dealing with the problem.

In Chapter 9 of Dale Carnegie’s book he makes a suggestion about how to best deal with paralyzing worries about things that are not likely to happen.  Accept them as if they were so.  You heard me right – accept the worst case scenario.  Let’s assume that IRS letter really is an envelope containing an eventual prison sentence.  If that were the case, it would not be the end of the world.  Why do I say that?  Because it has not come to pass.  Anything that is in the future can be changed.  Just like the “picture” in the original Back to the Future film, anything that is in the future is still within your control to change for good or for bad.

In Chapter 9 of Dale Carnegie’s book he goes on to suggest that after “accepting the worst case scenario,” the best medicine for worry is to immediately start improving on that outcome.  And the best way to do that if you have a serious tax problem is to enlist the help of a qualified professional.  But, let’s get back to why being proactive with dealing with IRS mail and IRS notices in particular, is the right way to go.

The “ostrich approach” to tax debts is stress relieving, but it is not goal achieving.

Let me explain why.

#1 – Most IRS Notices are Informative.

Sometimes all the IRS notice says is that changes were made to your account or an overpayment was credited to a particular tax year.  Not all news is bad news.

#2 – IRS Collection Letters Always Spell Out Various Rights You Have to Contest IRS Findings and Where to Send Your Responsive Correspondence.

If the news is bad, and you owe the IRS, and they are coming to get you – the notice will spell out important rights you want to know about.

#3 – IRS Audit Letters – Among the Most Feared – Permit You an Opportunity to Send in Information.  Losing that Chance Can Cost You.

More often than not, you will have information to back up items the IRS is questioning.  But, the surest way to get a large tax bill in an IRS audit Notice of Determination on Examination is to submit nothing.  If you do not participate, you can’t win.

#4 – Collection Letters Aren’t All Bad

Every collection letter has two purposes.  1) Collect Taxes Owed; and 2) Invite You to Contact the IRS and Deal with the Issue.

Whether you deal with an IRS issue or now or later – one thing is for sure – you will deal with it at some point.  You might as well get it behind you.  Every IRS notice is also an invitation to deal with the issue.  Seize that opportunity.

Ok.  You have received an IRS Notice.  You’ve opened it.  You know what it means.  So, how do you respond to such an IRS Notice?


#1 – Follow the instructions.

IRS forms are made to be easy to understand.  Scary as they are, they usually have sections with titles like, “What You Need to Do Immediately.”  That section will usually tell you if you have a right to request a “Collection Due Process Hearing.”  The answer to that question is always “Yes.”  The notice will usually give you the dates you need to take action by, where to send correspondence, and lots of other useful information.  That is information you will need to handle the matter yourself, but which will be very helpful to a tax professional, if you decide to get help with your tax problems.  If the deadline to respond is March 15th, make sure you don’t go see a tax professional about representing you on March 20th – act right away – so you don’t lose some of your rights.

There is usually a “If We Don’t Hear From You” section that warns you what will happen if you don’t respond.  This is very helpful if you are worried about different doomsday scenarios that are keeping you up at night.

#2 – Keep copies.

Even if you can’t decipher the meaning of a notice, a tax professional will be able to.  So save these notices and provide them to your tax professional when you go in for a consultation.

#3 – Assemble responsive documents and start a file.

Audit notices, styled as “Examination” notices, Form 886-A, often have “Explanation of Items” sections that talk about specific issues the IRS is looking into.  These usually involve Schedule C, Business Expenses or Schedule A, Itemized Deductions (travel, meals and entertainment, legal and professional services, cost of goods sold, self-employment tax deduction, earned income credit, mortgage interest deduction – to name a few).   

When you go to see a tax professional, the first thing they will ask is what kind of back-up you have for the expenses in question.  Do you have Quickbooks?  Do you have statements?  Do you have an Amex Business Card with all of your business expenses itemized in your statements?  What about a business bank account?  Do you have receipts?  Every bit of information you can pull together can help.  Start early getting your documents in order and it will save you a lot of pain down the road when you are on deadline.

#4 – Call or visit the IRS.  Don’t let call wait time or visiting room wait time dissuade you.

The reality is that you can handle many basis IRS issues on a phone call.  Be prepared to wait on hold for an hour or two.  Have your documents handy.  And do your homework.

You will not be penalized for trying.  In fact, your taxpayer contact will be noted by the IRS and will reduce your risk profile of failing to pay, giving you positive consideration.  Plus, you’ll feel better.  When on the call, if you ever feel over your head or can’t figure out what to do, just tell the call center representative you will be getting a tax professional to assist and that you’d like a hold on your account for a short period of time.

#5 – Ask for a 30 or 60 day extension of time to respond.

Odds are you don’t know precisely what you need to solve the problem or do not have it on hand.  So ask for time!  If you ask for an additional 30-to-60 days to get documents together or get the help of a tax professional, you will usually get it.  This is especially good if you want to interview a few tax professionals before deciding how to proceed.

#6 – Establish a Good Rapport with the IRS.

If a notice identifies a Revenue Officer, Auditor, or Appeals Officer assigned to your case, this is good news, because you have someone to talk to.  Call them.  Tell them what you do and don’t understand.  Get information.  Take notes.  Keep it in your folder with other documentation pertaining to this issue.  This will help you get a tax professional up to speed if you need one, and you will get a sense of the attitude of the IRS person assigned and whether you think they are on your side or out to get you.  Try to establish good rapport and be friendly and helpful – not nasty or resentful.  As the great Sun Tzu says in his treatise on warfare, “The Art of War,” To win one hundred victories in one hundred battels is not the acme of skill.  To subdue the enemy without fighting is the acme of skill.  There is no reason your adversary cannot be your greatest ally.  The IRS representative you are talking to is probably criticized, underappreciated, and yelled at on a daily basis – and a little respect will go a long way to winning this person over to your way of thinking.  This is a case where you will catch more flies with honey than with vinegar.  You must persuade and defend, but must not dissuade or offend. 

Too scared to pick-up the phone and dial?  Given to fits of rage?  Heart rate rising just thinking about what the IRS person might say to you.  If so, it is ok.  Knowing these things about yourself is better than getting into a screaming match with an IRS representative.

If you can’t deal with the situation, you should definitely get a tax professional to help you.

#7 – Look for the word “Final” followed by the words “Intent to Levy.”

These are words that mean there is a 30-day deadline before the Collection process begins in full force.  One of my mentors used to say that the IRS is like a Steam Roller.  They are slow, but once they catch up with you, they will flatten you.  This may be a little too dire for my tastes, but the point is clear.  When that Steam Roller is in sight and barreling down on you, it’s time to get out of its way.

The best way to handle this kind of letter is with a Request for a Collection Due Process Hearing.  It is bet to get a tax professional involved to help you at this stage.

#8 – Look for a Contact Person, Usually in the Upper Right Hand Corner of a Notice.

As noted above in #6, calling the IRS is a good idea.  But, calling the specific person with authority to handle your matter is much better.  And, as stated up in #6 above, you want to get off on the right foot.  First impressions are hard to overcome, and establishing a good working relationship will go a long way toward a good outcome.

#9 – Write the IRS a Letter.

It is always best to have a record.  One way to do this is to put your comments on the IRS correspondence in writing and to mail it Certified Return Receipt Requested.  Enclose copies of any relevant tax returns, tax back-up, or other information supporting your position.  Use the IRS address listed on your notice.

#10 – Get Professional Help – Call a Tax Attorney or Enrolled Agent and Get Representation.

Let’s face it, IRS problems are scary.  They are also technical.  The IRS has reams of statutory law and even an Internal Revenue Manual in place that guide how they handle these matters, that to you are nothing more than arcane bean counting.  Don’t let the fear or confusion over IRS process and procedure paralyze you.  Tax matters are serious matters and the amounts involved are often quite high.  It is well worth it to get the help of a qualified professional.

I am a Tax Attorney.  My Tax Group Manager, Manuel Zoquier, is an Enrolled Agent with a special license to practice before the IRS.  We have a lot of experience dealing with these cases and a good reputation for getting good results for our clients.

Give us a call at (201) 529-8024 and let us help you put your tax problems behind you.





Category: Tax

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