Boo! That’s pretty scary, but you’re probably much expecting some scares this time of year.

IRS notice! Now that’s even scarier. An IRS notice can sneak up on you and be a big, scary surprise. Before you run off screaming, though, let’s look at some of the different types of notices you might receive and how scary they might be.

The types of notices are rated from one to four “scary” pumpkins, one pumpkin being not a problem (or maybe even a refund), to four pumpkins meaning your CPA will probably advise you to immediately consult with your attorney. Here are some possible reasons for an IRS letter:

  • You have a balance due.   These notices start at $10 and go up from there. Generally this type of notice is generated because income you received was not reported on your tax return. So even though you owe something, at least you have the consolation that you earned and had use of the income.
  • You are due a larger or smaller refund.  The IRS determined that your refund needs adjustment. This is often due to a mix-up on the estimated tax payments that you made (or thought you made) during the year.
  • The IRS has a question about your tax return.  Usually due to lack of documentation for a specific item on the return. Once you produce the documentation, it is typically resolved.
  • The IRS needs to verify your identity.    Usually means that the IRS has received a tax return that makes them concerned that it is not you actually filing your return. This doesn’t usually cost cold cash, but involves your time— sometimes a lot of it—to resolve.
  • The IRS changed your return.   Generally due to income that was unknown to you because you did not receive a 1099 or similar form for the tax year. Also often due to a mix-up on the amount of refund applied from the past year compared the expected amount.
  • The IRS needs to notify you of delays in processing your return.  Usually due to missing documentation for income or expenses claimed. Again, just produce the documents and the issue is solved.
  • The IRS has selected your return for audit.    This is never welcome news but not a reason for panic. Although time consuming, many audits result in no or only small adjustments to your return. The key is providing well-organized supporting documentation to the auditor in a timely fashion.
  • The IRS discovered foreign accounts that should have been reported.     There is no getting around this one: it can be scary. Penalties and interest can be huge, and some violations can include criminal penalties.

It can always be a little scary to see a letter from the IRS in your mailbox. However, you can’t just turn out the lights, pretend no one is home, and hope it will just go away. We help clients work through each of these “scary” scenarios regularly, and we have the experience and knowledge to help you through any of these items. To reduce the “tricks” and focus mostly on the “treats,” make sure that if you do receive one of these notices, you contact us immediately.

By Cliff Acheson, CPA