Don't be alarmed if you've received a letter from the IRS. Not every letter means an audit. Most are routine and can be resolved in a few simple steps. Here's what to do if one shows up in your mailbox.
The article below is accurate for your 2017 taxes, the one that you file this year by the April 2018 deadline, including a few retroactive changes due to the passing of tax reform. Some tax information below will change next year for your 2018 taxes, but won’t impact you this year. Learn more about tax reform here.
Each year, the IRS sends out millions of notices to taxpayers. Some are informational only; others require a response. They can be both favorable and unfavorable. On the plus side, they may advise you of your eligibility for a tax credit; on the minus side, of a pending audit.
Notices may also alert you to an error on your tax return that triggered a refund (or a balance due). Others may request an updated address, or alert you to your eligibility for something such as the Additional Child Tax Credit. Still others will ask you to file an additional form.
In fact, there are at least 76 different form letters you can receive from the IRS on a number of topics. Check them out at www.irs.gov/Understanding Your IRS Notice.
What to do if you get a letter from the IRS
Go ahead and open the envelope—the news may be in your favor. If it’s not, then here’s what you should do:
- Deal with the letter promptly. If you miss the response deadline, it could make your case worse.
- Stay calm. Panic won’t decrease your tax liability. In fact, if panic immobilizes you and you don’t deal with the letter, you may end up owing more.
- Deal only with the specific questions the letter asks. If you have another tax issue to discuss with the IRS, address it in a separate letter.
- The letter will give you specific instructions on what to do to resolve the problem. Follow these directions carefully.
- If you’re confused by the letter and not sure how to respond, the IRS can answer most questions by phone (1-800-829-1040). If the issue is serious, however, it might be better to put your questions in writing.
- Some notices will ask for additional information. The IRS will provide you with a deadline for satisfying the request. To avoid further action, be sure to meet the deadline.
- Other notices may advise you of corrections to your tax return. Compare the corrections to your original return.
- If you agree with the changes, there’s no need to do anything, unless a payment is due.
- If you don’t agree with the changes, write the IRS, explaining your position. Include any documents that support your case.
- Mail the letter and any requested documents to the address the IRS provides—it’s usually in the upper left-hand corner of the notice. Include the bottom tear-off part of the notice that includes your name, address and Social Security number.
- Keep a copy of any correspondence with the IRS. You may need to refer to it later.
Decreasing your risk of an IRS audit
Once you’ve cleared up the problem, take steps to avoid receiving letters in the future. Many can be avoided by simply filing an accurate tax return. Careless mistakes will almost certainly trigger an IRS notice. Take special care with your return, check the math, review the rules, and sign on the bottom line.
The chance of being audited is low—only 1% of all returns are audited, according to 2009 IRS data. Yet some things on a tax return do increase your audit risk. Here are some red flags to watch out for:
- Home business that loses money year after year. The IRS may view this as a hobby, not a legitimate business.
- Home office deductions. If you claim a high percentage of your living space as a home office the IRS may be suspicious.
- A high level of itemized deductions. Claiming $40,000 in deductions on an income of $60,000 will probably draw IRS attention.
- Casualty losses out of synch with income. You can’t claim a casualty loss that’s less than 10 percent of your adjusted gross income net any insurance payments received.
Help from TurboTax
Our downloadable Audit Support Center is included free with all TurboTax products. It offers step-by-step guidance for dealing with all kinds of IRS letters. Find out why the IRS is contacting you and how to respond.
TurboTax also helps protect you by importing data such as W-2 and 1099 info directly from more than 100,000 employers, which reduces your chances of misentering information. In addition, TurboTax checks your return for errors and common audit triggers, and guarantees your calculations will be 100% accurate.
For those who want even more protection, TurboTax also offers Audit Defense for full representation in the unlikely event you are audited (fees apply).
Additional information about IRS notices can be found in Publication 594, The IRS Collection Process. It’s available at www.irs.gov or by calling 1-800-TAX-FORM.
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