The Postman Cometh: Responding to IRS Notices

The IRS sends out millions of taxpayer notices each year.  However, IRS notices are sent ONLY via the U.S. Postal Service, never by email or any other means of communication.  So if you receive an email purportedly from the IRS, it is bogus. (You can forward these bogus emails to your state’s attorney general for fraud investigation.  Don’t open them!)

There are more than one hundred different kinds of notices that IRS can send out.  The most important thing to do when you get an IRS notice is to IMMEDIATELY open it, read it, and then take action.  Often, you will only have 30 days to respond.

These notices can be audit notifications, requests for payment, or any one of the following more common kinds of notifications, as indicated in the upper right hand corner of the notice:

CP 102: A math error was found on certain forms (such as Forms 941, 942, 943, 944 or 945 returns) that you filed, and the IRS believes you owe more tax.

CP 138: The tax you overpaid on one tax return was applied to another return where you owed tax.

CP 165: Your check for your FTD or estimated taxes was returned. This notice asks for the payment, plus a bad check penalty of two percent (the minimum penalty is $15).

CP 205: You used the wrong taxpayer identification number on your FTD coupon.

CP 2000: Issued for verification for unreported income, payments, or credits.  These are generated when IRS computers cannot match information from 1099s, 1098s, etc. to information on your tax return.

CP 2100: To notify the payer/filer of incorrect information, and to remind them of their obligation to solicit the correct information, so they can file correctly in the future. The notice also reminds them of their responsibility to backup withhold if the information is not provided.

CP 2501: A discrepancy was found between what you reported as your income, credit or deduction and what IRS records show.

We tell our clients to forward all IRS notices to us upon receipt.  We prefer to prepare the response, and we have one CPA in our firm who is our designated “notice responder”.  In our own experience, about 80% of the notices our clients receive are incorrect.  So, definitely do not panic if the IRS says you owe them gazillions of dollars. 

Most of the notices we receive are the CP-2000 (1099 matching) notices and the CP 2400 (incorrect estimated tax payments listed on the return).  These notices are easily resolved with proper correspondence, via regular mail, of course.

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