Dealing with an IRS notice can be stressful, but responding correctly and on time can help you avoid penalties and legal complications. Whether you’re a business owner or an individual taxpayer, understanding why you received a notice and how to respond is crucial.

In this guide, we will explain the types of IRS notices, how to respond, and what steps to take if you don’t agree with the IRS.

Why Did You Receive an IRS Notice?

The IRS sends notices for various reasons, including:

• Unpaid taxes – If you owe taxes, the IRS will send a notice requesting payment.
• Incorrect tax return information – If there is a discrepancy in your tax filing, the IRS may need clarification.
• Missing tax returns – If you failed to file a return for a previous year, you may receive a notice.
• Identity verification – The IRS may ask for additional proof to confirm your identity.
• Audit notification – You might be selected for an IRS audit based on your return.

Types of IRS Notices

Each IRS notice has a unique code that identifies its purpose. Some of the most common notices include:

1. CP2000 – Underreported Income
   • Sent when the IRS finds a mismatch between your reported income and third-party data (such as W-2s and 1099s).
2. CP14 – Unpaid Taxes Notice
   • The first notice sent when you owe taxes. It includes the amount due and payment options.
3. CP501/CP503 – Reminder of Unpaid Taxes
   • Follow-up notices if you don’t respond to CP14.
4. CP90 – Intent to Levy
   • A serious notice indicating the IRS may seize assets if taxes remain unpaid.
5. Letter 226J – Employer Shared Responsibility Payment
   • Sent to businesses for non-compliance with the Affordable Care Act (ACA) employer mandate.
6. Notice of Deficiency (90-Day Letter)
   • Gives you 90 days to respond before the IRS makes a final tax determination.

How to Respond to an IRS Notice

If you receive an IRS notice, follow these steps carefully:

Step 1: Read the Notice Carefully

• The notice will explain why it was issued and what action is required.
• Look for due dates and amounts due (if applicable).

Step 2: Verify the Information

• Compare the notice to your tax returns and financial records.
• If you agree with the IRS, follow the payment instructions.

Step 3: Take Action Based on Your Situation

If You Agree with the Notice:

• Follow the instructions for payment or adjustment.
• Pay online through the IRS website or set up a payment plan.

If You Disagree with the Notice:

• Prepare supporting documents (tax returns, receipts, bank statements, etc.).
• Write a response explaining the discrepancy.
• Mail or fax the response as instructed in the notice.

Step 4: Contact the IRS (If Necessary)

• If the notice is unclear or you need more time, call the IRS at the phone number provided.
• Be ready with your taxpayer identification number (TIN) and a copy of the notice.

Step 5: Keep Records of All Communications

• Save copies of the notice, your response, and any documents sent to the IRS.

Common Mistakes to Avoid When Responding to an IRS Notice

• Ignoring the Notice: Failure to respond can lead to penalties or legal action.
• Delaying Your Response: The IRS usually gives 30 to 90 days to reply—don’t wait until the last minute.
• Paying Without Verification: Ensure the IRS claim is accurate before making payments.
• Not Seeking Professional Help: If you’re unsure about your response, consult a tax professional.

What Happens If You Ignore an IRS Notice?

Ignoring an IRS notice can lead to serious consequences, such as:

• Additional penalties and interest – The longer you delay, the more you owe.
• Tax liens or levies – The IRS can place a lien on your property or seize assets.
• Wage garnishment – The IRS may deduct unpaid taxes from your paycheck.
• Legal action – In extreme cases, non-compliance can result in legal consequences.

FAQ 

1. How long do I have to respond to an IRS notice?

Most IRS notices give you 30 to 90 days to respond. The deadline will be clearly mentioned in your notice.

2. Can I ignore an IRS notice if I think it’s a mistake?

No. Even if you believe it is incorrect, you must respond and provide supporting evidence. Ignoring the notice can result in penalties.

3. What happens if I miss the IRS response deadline?

You may face additional interest, penalties, or enforcement actions such as a tax lien or wage garnishment.

4. Can I set up a payment plan if I can’t pay the full amount?

Yes, the IRS offers installment plans that allow you to pay your taxes over time.

5. Should I hire a tax professional to respond to an IRS notice?

If you’re unsure how to respond, a tax consultant or accountant can help you navigate IRS procedures and avoid costly mistakes.

Final Thoughts

Getting an IRS notice doesn’t have to be too painful. The key is to act promptly, verify the information, and respond appropriately.

Need help handling IRS notices? House of Neurals specializes in US tax filings, IRS compliance, and accounting to ensure your business stays on track.

Get in touch today and let us handle your tax concerns hassle-free!