IRS Letters Decoded: What That Notice Really Means and How to Respond

Opening your mailbox to find a letter from the IRS can feel overwhelming and intimidating. However, these letters are often less frightening once you understand their purpose and what steps you need to take. In this post, we’ll break down the most common IRS notices, explain what they mean, and provide clear guidance on how to respond.

Why Did I Receive an IRS Notice?

The IRS sends letters or notices for various reasons, including:

• Informing you of changes to your account or tax return.
• Requesting additional information.
• Notifying you of a balance due.
• Explaining payment options or enforcing collections.

Every IRS notice includes a notice or letter number (e.g., CP504 or LT11), usually found in the upper right-hand corner. This number is key to understanding the purpose of the letter.

Common IRS Notices and What They Mean

1. CP2000: Proposed Changes to Your Return

• What It Means: The IRS identified discrepancies between the income or payment information you reported on your tax return and information reported to them by third parties (e.g., employers or banks).
• How to Respond: Review the details in the notice. If you agree, follow the instructions to pay or set up a payment plan. If you disagree, provide supporting documentation to refute the IRS’s findings.

2. CP504: Notice of Intent to Levy

• What It Means: You have an unpaid balance, and the IRS intends to seize your assets (e.g., bank accounts or property) if the amount isn’t paid.
• How to Respond: Take immediate action. Pay the balance or contact the IRS to arrange a payment plan. If you need help, consult a tax professional to avoid escalation.

3. CP14: Balance Due

• What It Means: This is a straightforward notice informing you of taxes owed. It includes the amount due, including penalties and interest.
• How to Respond: Pay the amount by the due date to avoid additional penalties. If you cannot pay in full, request a payment plan or explore other resolution options.

4. CP90: Final Notice Before Levy

• What It Means: The IRS is giving you a final warning before they levy your assets. This notice also informs you of your right to a Collection Due Process (CDP) hearing.
• How to Respond: Request a CDP hearing within 30 days to temporarily stop collection actions and discuss resolution options.

5. Letter 5071C: Identity Verification Request

• What It Means: The IRS suspects potential identity theft and requires you to verify your identity before processing your tax return.
• How to Respond: Follow the instructions in the letter to verify your identity, either online or by phone. Have your tax return and supporting documents ready.

General Tips for Responding to IRS Notices

1. Read the Notice Carefully: Understand what the IRS is asking for and the deadlines for responding.
2. Don’t Ignore It: Failing to respond can lead to additional penalties, interest, or enforcement actions.
3. Gather Documentation: Collect all relevant records to support your response or dispute.
4. Respond Promptly: Many IRS notices include deadlines for action, so don’t delay.
5. Seek Professional Assistance: If you’re unsure how to handle a notice or need help negotiating with the IRS, consult a tax resolution attorney or other qualified professional.

When to Contact a Tax Resolution Professional

Some IRS notices, like those involving levies, audits, or significant balances, require expert guidance to ensure the best outcome. A tax resolution professional can:

• Interpret the notice and explain your options.
• Communicate directly with the IRS on your behalf.
• Negotiate payment plans, penalty abatements, or other resolutions.

Preventing Future IRS Notices

While it’s not always possible to avoid IRS notices, you can reduce your chances of receiving one by:

• Filing accurate and complete tax returns.
• Reporting all income and properly documenting deductions.
• Paying taxes on time or setting up payment arrangements if needed.

Take the Stress Out of IRS Notices

Receiving a letter from the IRS doesn’t have to be a nightmare. Understanding the notice and respond promptly. Seek out a tax resolution expert whom you trust, and let them take command of your tax problems.