What are some of the types of IRS notices and letters?
There are several notices that are the ‘lite’ version of a full blown audit or face to face examination. The IRS might send a notice adjusting child tax credit or earned income credit, correcting miscalculations or requesting a missing schedule or form from your tax return.
The IRS has a nice list of various notices and letters at www.irs.gov/Individuals/Understanding-Your-IRS-Notice-or-Letter. Here are some of the highlights-
CP2000 Notice of Proposed Adjustment for Underpayment or Overpayment: This is a common notice, and the majority of CP2000s are generated because of what you report on your tax return and what the IRS has in the database (W2s, 1099s, etc.) is different. The CP2000 typically includes a transcript of everything the IRS has associated with your social security number. In our experience, the proposed amount due is simply wrong- at times it is actually in your favor, but commonly an amended tax return will work out better than the IRS’s proposed balance due.
A great example is a stock sale which was reported to the IRS. Unfortunately, the cost basis and transaction fees don’t get transmitted. So, you could easily sell $10,000 in stocks and the IRS will consider the entire amount as a gain, or taxable income. This situation requires an amended tax return to offset the gain with your costs.
CP2501 Notice, Initial Contact Letter: This IRS notice is the close cousin of the CP2000. It typically does not have a proposed balance due, rather it requests clarification on differences between your tax return and information from other sources. In these cases, the best advice is to order a transcript of your tax return- this will show all the information the IRS has associated with your social security number. Use Form 4506-T, Request for Transcript of Tax Return to get the information.
Letter 2205-A: This IRS letter informs you that your tax return is being examined. The letter will provide the agent’s name and contact information, and the areas of your tax return which will be examined. This is a common misconception among taxpayers- only selected sections of your tax return will be audited. However, if the IRS agent smells a rat, they can easily open up the entire tax return for examination.
CP22E Examination Adjustment Notice: This is the follow up letter from the IRS after an audit (either correspondence or field). It usually includes the details or findings from your audit resulting in unpaid balance of tax due. You generally have 30 days to respond to this notice.
Letter 2625C, 2526C: This is a common notice from the IRS and it is also called a 30-day letter since you have 30 days to agree or appeal the findings. It shows a balance due, and provides instructions on which steps you can take (agree, appeal, etc.).
Letter 3219 Notice of Deficiency: This notice informs you that there is an increase in your tax due. This is generated after you appeal or if you do not respond to your 30-day letter. After receiving a notice of deficiency you have 90 days to petition the tax court (or 150 days if you live outside the United States). The appeals process typically has expired once this letter is issued, and while the IRS mentions the Taxpayer Advocate assistance program it also states that they essentially cannot reverse the IRS’s determination. Professional tax help is required at this level unless you agree to the changes.