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Understanding IRS Notices and Letters


Receiving a notice or letter from the Internal Revenue Service (IRS) can be intimidating. However, remember that these notices are often routine and can be addressed effectively if you understand what they mean and how to respond.

This guide will help you understand different types of IRS notices and letters, what they mean, and what actions you should take in response.

Why Does the IRS Send Notices and Letters?

The IRS sends notices and letters for a variety of reasons. You might receive one because the IRS has a question about your tax return, needs to verify your identity, needs additional information, has changes to your account, or wants to notify you about the amount you owe.

It’s crucial to read any IRS notice or letter carefully and respond promptly if necessary.

Types of IRS Notices and Letters

There are several types of IRS notices and letters that you might receive. Here are a few of the most common ones:

CP2000 Notice

The CP2000 Notice (Notice of Underreported Income) is issued when the IRS identifies a discrepancy between the information on your tax return and data reported by employers or financial institutions. This notice is not a bill but a proposal to adjust your tax return based on the identified discrepancy.

It’s crucial to review this notice carefully, agree or disagree with the proposed changes, and respond promptly to avoid potential penalties or additional interest.

CP501 Notice

The CP501 Notice (1st Notice) is a reminder from the IRS that you have an outstanding balance on one of your tax accounts. This notice is typically the first communication you’ll receive about any unpaid taxes. It will detail the amount you owe, any penalties or interest accrued, and provide instructions on how to make a payment.

CP503 Notice

The CP503 Notice (2nd Notice) is the second reminder from the IRS about your outstanding balance. If you’ve received this notice, it means that the IRS did not receive a response or payment after the initial CP501 Notice.

The CP503 Notice will reiterate the amount you owe. This includes any additional penalties or interest that may have accrued, and will urge you to make a payment or establish a payment plan.

CP504 Notice

The CP504 Notice (Notice of Intent to Seize [Levy] Your Property or Rights to Property) is a more urgent communication from the IRS. You will receive this notice when you still have an unpaid balance on one of your tax accounts and you haven’t responded to previous notices.

At this stage, the IRS is warning you that they will issue a levy against your state tax refund or other property if the you haven’t settled your debt. It’s crucial to respond to this notice promptly to avoid further action.

Letter 5071C

Letter 5071C (Potential Identity Theft During Original Processing) is sent when the IRS needs to verify your identity. This usually happens when the IRS suspects potential identity theft or when something on your tax return differs from the information the IRS has on file.

The letter will provide instructions on how to verify your identity, either online or by phone, to ensure that your tax return is processed correctly and any potential fraud is prevented.

Letter 226J

Letter 226J (Proposed Employer Shared Responsibility Payment) is sent to employers who may have to make a shared responsibility payment under the Affordable Care Act (ACA). This typically occurs when the IRS has determined that an employer potentially failed to comply with the ACA’s employer mandate for a given tax year.

The letter outlines the proposed payment and provides instructions on how to respond, either by agreeing with the proposed payment or disputing the determination.

What Steps Should You Take?

The steps you should take depends on the type of notice or letter you receive. Here are some general steps to follow:

  • Don’t Ignore the Notice: Ignoring the notice won’t make the issue go away. Address it promptly to avoid potential penalties and interest.
  • Read the Notice Carefully: Make sure you understand what the IRS is telling you. The notice will usually explain the reason for the contact and give you instructions on what to do.
  • Verify the Information: If the IRS says there’s a discrepancy with your tax return, compare the information in the notice with your tax return. If you agree with the changes, you usually don’t need to reply unless a payment is due.
  • Respond Promptly If Necessary: If you don’t agree with the notice, it’s important to respond as soon as possible. Write a letter explaining why you disagree, and include any information or documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice to the address shown in the upper left-hand corner of the notice.
  • Pay What You Owe: If you owe taxes, pay as much as you can, even if you can’t pay the full amount. This will help limit interest and penalty charges.
  • Keep a Copy of the Notice: Keep a copy of the IRS notice or letter for your records. It’s also a good idea to keep a copy of any replies you send to the IRS.

Getting Help

If you’re unsure about how to respond to an IRS notice or letter, consider seeking help from a tax professional. They can help you understand the notice, communicate with the IRS, and ensure your rights are protected.

Remember, the IRS will never initiate contact with taxpayers via email, text messages, or social media channels to request personal or financial information. If you receive such a message, it’s likely a scam.

Understanding these IRS notices and letters can help you navigate your interactions with the IRS more confidently and effectively. If you have any questions or need further assistance, don’t hesitate to contact us at 800Tax. We’re here to help you with all your tax needs.

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