You come home from a nice relaxing vacation (or a hard day at work), flip through the pile of mail you grabbed from the mailbox, and it hits you right between the eyes…the envelope with the return address that starts with three big bold letters…IRS. The blood drains from your face, your palms get clammy, you get a knot in your stomach, and you think “am I going to jail?”
Hopefully this hasn’t happened to you, but I’m here to tell you that if you do get an envelope from the IRS, you most probably aren’t going to jail (but if you do, I’ll come visit!). The IRS sends millions of letters and notices to taxpayers each year, for various reasons, and recently came out with Summertime Tax Tip 2011-22, which is titled “Eight Tips for Taxpayers Who Receive an IRS Notice”. For tax professionals like me, who have seen our share of notices, it doesn’t even raise the blood pressure to have to address a notice on behalf of our clients. For people who have never received a notice before, it can be an extremely stressful thing, even if it ultimately turns out that IRS was wrong. Just seeing that envelope can make ones heart skip a beat or two.
IRS gives eight tips, but I’d like to add a ninth, by adding one of my own, which is, open the envelope, and reply if requested. I can’t tell you how many times over the years I’ve had a client hand me an envelope (or two or three or more) from IRS that’s unopened and/or unanswered. Read my post from 7/11/11 (“I Thought I Was Getting A Refund!) and you’ll see a scary example of what kind of a mess will result from ignoring notices from IRS. And now, on to some of IRS’s tips!
-“Don’t panic”-this sounds pretty basic and straightforward, and it is. As IRS points out “many of these letters can be dealt with simply and painlessly”, and as I said earlier, a letter from IRS is not a jail sentence, so stay calm.
-“Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry”-in other words, read! Unfortunately, too often I’ve found this to be a problem in general…people don’t read things, and that creates or intensifies problems needlessly (not to mention creating more stress). Take the time to read the letter/notice from start to finish. If you don’t want to do that, have your friendly neighborhood CPA read it for you, and help you.
-“If you receive a correction notice, you should review the correspondence and compare it with the information on your return”-IRS isn’t correct 100% of the time, but the only way to know if they are or not is to compare what they sent against what’s on the return.
These are just a few of IRS’s tips for what to do when a notice is received. What experiences have you had with correspondence from IRS? Please leave a comment, and let me know if there are any topics you’d like me to write about in the future. And please feel free to forward this article to a friend in need.
Jay E. Reiner, CPA 
I got one of the really scary letters that led to an audit. My CPA was with me every step of the way, and it all turned out okay in the end. Definitely call your CPA if you’re not sure. Sometimes you can’t do it yourself.