When there is an IRS certified letter accompanying the daily mail, it could give someone the jitters. The IRS sends these letters with critical information concerning your taxes. It’s of the utmost importance to know why the IRS is mailing the letter certified, so that you can react and take necessary steps toward handling the situation. This article is going to explore some common reasons that could make the IRS mail you a certified letter and some tips for effective response.
What is an IRS Certified Letter?
It is a type of letter that the IRS writes to a taxpayer regarding very important tax issues needing immediate attention. Normally, the letters are sent certified so that the IRS is assured an individual has received them, being that they might involve time-sensitive information about either actions that the IRS is going to take or additional information requests. Using certified mail allows the IRS to confirm it was delivered; it is a professional method of delivery, which offers a form of urgency.
Notice of Tax Due: Understanding Your IRS Bill
By far the most common reason for an IRS certified letter is because of a Notice of Tax Due. This means that you owe them back taxes that they have determined were not paid in full after a review of your records. The certified IRS letter will state how much you owe, why the tax is due, and when you need to pay the tax by. You reply to that notice as quickly as possible because failure to do so will only mean you are accruing more in penalties and interest. In the event that you ignore a Notice of Tax Due, you worsen things and may be facing more critical problems such as a Notice of Intent to Levy.
Notification of Audit: IRS Needs to Examine Your Taxes
You could also receive an IRS certified letter for audit notification. An IRS audit is done to check whether or not you have filed your return correctly and if your return is true according to your claim. An IRS certified letter will state which parts of the return are to be examined and what kinds of documentation you will need to provide. Note that an audit information letter does not imply criminal activity. Audits are done on a random basis and also based on the complexity of the tax return. Responding promptly and fully is vital to avoid increasing complications.
Proposed Changes to Your Tax Return
If the IRS reviews your return and believes there are mistakes or omissions that must be corrected, it will issue an IRS certified letter that outlines the proposed changes to your filed tax return. It will explain what type of changes the IRS is proposing and why they feel it is required. You can either agree with proposed changes or contest them if you feel the mistake was on the IRS’s side. This is crucial because, unless you respond or take care of the changes suggested, the IRS will enforce the changes that can jack up your taxes.
Failure to File a Tax Return: When You Need to Know More
The failure to file a tax return ranks number two on the list of top reasons for receiving an IRS certified letter. In case the IRS discovers that you did not file a needful return, they will contact you by certified mail. The letter, of course, will mention the tax years for which the return has not been filed and provide all the instructions as per what this return is supposed to do. It’s very important to act quickly. Failure to file can result in severe penalties or even prosecution by the government. In some cases, the IRS will prepare a substitute return on your behalf; this almost always results in a higher tax bill, as they won’t account for deductions and credits you might be eligible for.
Delinquent Tax Collection Actions: Liens and Levies
Solely, if you owe back taxes and have not worked out arrangements to pay, the IRS may send you a certified letter to notify you of impending collection actions, such as liens or levies. ANotice of Intent to Levy is a serious document that informs you that under the law, the IRS will seize your assets in order to satisfy part or all of the amount of your tax debt. This may include wage garnishment, bank levy, or seizure of property. The Notice of Intent to Levy is a really critical notice, and immediate action should be taken. There is a need to act within the time frame by making a payment, a qualified offer, receiving an installment agreement, or by sending a protest to the levy. If you ignore the Notice of Intent to Levy, the situation can put you into a really unbearable financial state.
Unreported Income: This is Why the IRS Extended Correspondence Matching
The IRS matches the income you report in your tax return with the information reported to the IRS independently by third-party agencies, such as employers and banks. If it finds any discrepancy, it should notify you through an IRS certified letter; usually, the letter provides an explanation of the discrepancies between what you reported and what the IRS found. You will be asked to substantiate your earnings and to support them with documents, if so requested. By timely responding, more severe actions can be averted—such as an audit or other penalties on top of the original amount owed.
Preventing and Responding to Penalty Notifications
There are few things worse than receiving a certified letter from the IRS for penalty payments. These types of penalties can be for late filing or paying, as well as for an error or omission in your tax return. The certified letter will detail the assessed penalties and how to pay them. If you think the assessor was wrong to apply the penalty, the letter will set forth how you may contest it. You should resolve these penalty liabilities quickly because the charges on penalties continue to accrue interest, which can spiral out of control, making the underlying tax liability more complicated and expensive to resolve.
Important Deadlines and What Those Mean for You
Each IRS certified letter will have deadlines in it for you to respond or take action on. If you miss a deadline, there will be additional penalties, more interest added to what you already owe, or any of the much more grave enforcement actions up to and including a Notice of Intent to Levy. It is very important to become familiar with the deadlines and what needs to happen at that point. Whether an answer is due, payment must be made, or extra documentation should be submitted, putting forward these deadline requirements can play a large part in determining what happens in your tax issue.
Things to Do After Getting a Certified Letter from the IRS
As said before, getting a certified letter from the IRS is inherently distressing. The upside is you know what to do:
Read carefully: Take some time reading the letter to understand its contents and purposes. It’s very important to know and understand what the IRS wants and why.
Respond promptly: Respond to the issues raised within the letter before the deadline. Response in good time avoids complications of any other case.
Gather Documentation: You should collect all papers concerned with the issues that are now raised in the letter. This may include tax returns, receipts, or other financial documents.
Seek Professional Help: A need to hire professional help may arise, such as a tax professional, especially if the letter stipulates complex issues such as a Notice of Intent to Levy or scenarios with an audit. This will better help you deal with the situations.
Keep Records: Keep a copy of the IRS certified letter and any letters you send in reply to the IRS. Thorough records may be important if you ever need to refer back to the situation at a later date.
Summary
Receiving an IRS certified letter is not something for which to panic, but it is a red flag that must prompt action. Familiarizing yourself with some common causes for these letters, such as a Notice of Intent to Levy, audit notifications, and discrepancies in reported income, helps in taking charge of such situations strategically and with calmness. Whether it is a straightforward notice of tax due or a more serious issue like an audit or a levy, the right way to handle IRS correspondence might just tip the scales in your favor when it comes to your tax matters.
