Each year you get W-2s, 1099s, K-1s, and other tax papers. These papers report your income, interest, sales, dividends, retirement income, IRA withdrawals, etc. Remember to take all these papers with you when you get your taxes done. When you forget one and do not report it on your return, it may raise a red flag with the IRS. Why? It will raise a flag because they also receive a copy of all your tax forms on their computers. They use this information and match it to your tax return. If something is significant is missing or omitted, the IRS is going to send you a letter requesting an explanation or a tax payment. You will also receive correspondence if you don’t file a return and the data the IRS has indicated that you should have filed. They have form letters for just about every possible situation.
Often, these notices will include a proposed tax due, plus interest and/or penalties. It will also include an explanation of the examination process and how you can respond. These letters by law will advise you of your rights and other information. That being said, this tends to make the letters lengthy and hard to understand. This is why it is important to have a trained eye review them before you take any action.
Avoid the temptation to put it off or to throw the letter away hoping the issue will go away. After a period of time, another letter will come automatically. Each letter will become more aggressive and more difficult to deal with. It may even reach a point where you might have to go to tax court to argue your case or pay whatever amount of money the IRS is demanding.
More importantly, don’t automatically pay an amount the IRS is requesting unless you are absolutely positive the amount is correct. Quite often, you really do not owe the amount being billed, and it will be difficult and time consuming to get your payment back.
It is always a good practice to have a tax professional review the correspondence letter and respond to the IRS in a timely manner. These “nasty letters” from the IRS will come by regular mail, not email. If you receive an email from someone claiming to be from the IRS and demanding a tax payment, this email is fraud, since the IRS does not use email for this purpose. Please call this office immediately in regards to any notice you receive about your tax returns.