Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
You arrive home after work and find it in your mailbox: a letter from, the IRS. Your heart starts racing, and you start sweating. You then take a deep breath, hoping and praying that it’s a refund, and slowly, but frantically, with oxygen mask attached, and with fingers turning white from gripping something, you open the letter. Now what should you do?
- Put it back into the envelope and stuff it in the drawer;
- Get on the phone to the IRS as soon as you can get the envelope open;
- Call your barber;
- Send it to me and go on with your day.
Most probably, it’s an IRS CP2000 notice, or what I call ‘an Oops! Letter’.
After all the W-2s and 1099 have been submitted by employers and payers, and most of the returns have been filed, the IRS begins matching what was reported to them against what we reported on our returns. This isn’t a problem for most of us since we report all our income. Sometimes we forget something, or it comes in after the return is filed and we never get around to amending the original return, or the math or data entry on the original return is wrong, or we deliberately leave income off the return. That is when we will get a letter from the IRS nicely telling us that we (oops) forgot something or made a mistake and here is what they think we still owe them (or they owe us.)
If you get a letter, don’t panic. Breath in, breath out. First, read the letter. Yes, it may be confusing, and it might seem to be written in another language. You have plenty of time to respond and if you need more time, a polite request will do. Take the time to really read the letter. The notice will normally cover a very specific issue about your return, and what you need to do. Do not call the IRS. Did you know that the IRS has two sets of phone lines — one for taxpayers, 800-829-1040, and one for practitioners. Can you guess where they put their slower less experienced staff?
- Is the notice right? Is that your income? Don’t assume that the IRS is either right or wrong until you have studied that letter. The letter will tell you exactly what was missing from the original return. Second, send the letter to me, so I can double check it. If the letter is correct (and that income is not the sale of securities or properties), then all you have to do is mark that you are accepting the changes to your return, make out a check, or make payment arrangements, and mail the letter back to the IRS. An amended return might be in order if you forgot to report a sale of securities or property since your tax is based on the gain or loss on the sale and not the sale price. All the IRS has is the sale price not the taxable amount. Note also, that you may have to file a State amended return as well.
- If you disagree with the proposed changes, then it is up to you to prove to the IRS why your return should not be changed. Gather the documentation, and send the letter to me with your proof. We’ll check the box that notes we are disagreeing with their assessment, send it to the IRS, and wait for their review of the material and their response.
Again, whatever you do, don’t panic, but also don’t blow off this notice. It is not going away or evaporating. If you don’t deal with this now, you will deal with it later and in the meantime the interest and penalties will grow.
Please, relieve your stress and high blood pressure. Fax the letter to me, and let’s handle it promptly.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.