Understanding Your IRS Notice

Receiving tax notices, collection notes and audits

Most everyone hates mail from the IRS. And the IRS knows this. Currently, their legal-language gnomes are in the process of revising the notices so that filers don’t open up a letter in panic only to throw it aside in frustration. In plain language, your letter should tell you exactly what action you need to take. If it’s still unclear, contact a professional. They can help you understand how to handle anything from an address change, to an audit.

Knowledge is power!

So, you open up the letter and realize pretty quickly it’s not a check with your name on it. Shucks. Instead you find a letter with a CP (computer paragraph) code on the top-right that identifies your unique circumstances and the actions required of you. Well, if that letter’s been sitting in a drawer for some time, call the IRS to let them know it’s coming. Don’t just hope it gets processed before the end of the response period. These notices are sent out by a computer, and computers can be pretty unreasonable. So get on the phone with a person and let them know it’s coming!

Some notices are more common than others. But generally, the majority of these notices concern over-payment, underpayment, a change of information (your filing requirements, tax credits, change of address) or other communication regarding the processing of your refund. Let’s start with those we see most. You might also receive reminder notices on these that are coded differently.

CP 12: Math Error–Overpayment of $1 or More

This is probably the best news you can get, except that it confirms you’ve done your basic math wrong. But that’s okay! Break out the champagne: an unexpected return is coming! You have sixty days to respond if you think the IRS did the adjustment wrong. That’s very noble of you.

CP 14: Balance Due, No Math Error

All work and no play. This notice is a computation of underpayment penalties and interest to your return including late filing or payment penalties. You have twenty-one days to respond.

CP 23: We Changed Your Estimated Tax Total, You Have An Amount Due

Remember our discussion earlier about quarterly payments of estimated taxes? If there’s a discrepancy between the amount the IRS posted to your account and the amount you said you paid in estimated taxes on your return, this is how you’ll find out. If you know you paid it, you have twenty-one days to respond with a copy of that check.

CP 24: We Changed Your Estimated Tax Total, You Are Due a Refund

Same scenario as above, but this time you’re owed money. Put your tongue back in your mouth; the check is in the mail.

CP 49: Overpaid Tax Applied to Other Taxes You Owe

If you owe money, this letter will spell out to you why, when and to whom. Get to the source. The IRS usually doesn’t want to squabble with you over this. The IRS can grab your refund to pay for outstanding debts such as back taxes, child or spousal support, student loans in default or money owed to the SSA.

CP 80: Reminder–We Have Not Received Your Tax Return

This one should speak for itself. Consider it a polite tap on the shoulder.

CP 90/CP 297: Final Notice–Notice of Intent to Levy and Notice of Your Right to a Hearing

or

CP 91/ CP 298: Final Notice Before Levy on Social Security Benefits

OK, so you ignored repeated notices. This one is more of a kick to the shins. You have thirty days to respond to this one or pay. You can easily work out a payment plan, so don’t wait until a guy in a gray suit and shades shows up at your doorstep to do so.

CP 504: Urgent Notice–We Intent to Levy on Certain Assets

Bad news first: you have ten days to respond before the IRS goes after your bank accounts, wages and any other funds they can get their hands on. The good news: well, there isn’t any. Except that your employer and bank can hold your funds for twenty days before the IRS gets to them, so  sort it out immediately!

CP 515: Request For Tax Return

Did it get lost in the mail? Let’s be honest people. But if so, make a copy and send it back.

CP 523: Notice of Default on Installment Agreement

You’ll get these if you’re not making agreed payments on your payment plan. Remember that you provided bank account numbers and OK’d permission to levy should you fail to pay. Go ahead and pick up that phone.

CP 2000: Notice of Proposed Adjustment for Underpayment/Overpayment

On comparing your returns, the IRS has found a discrepancy with what you reported and their sources. This comes with a request for your verifications of income, credits, and deductions. If you get more than one of these ask for more time to sort it out. You have thirty days to respond.

On the subject of audits

They happen to both the best and the worst of us, and with more frequency to small business owners than you might think. We’ll cover audits another day.

Audit Defense Survival

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Tax withholding

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