Thursday, May 5, 2011

Tips for taxpayers in case the IRS calls

Thursday, May 5, 2011

Finding a letter from the IRS in your mailbox is like discovering a baby alligator in your toilet: Your first impulse is to shriek, slam the lid shut and hope it disappears.

  • Internal Revenue Service headquarters in Washington.

    By Jon Elswick, AP file

    Internal Revenue Service headquarters in Washington.

By Jon Elswick, AP file

Internal Revenue Service headquarters in Washington.

But while the alligator might retreat back into the sewer system, the IRS wont go away. And even though any missive from the IRS looks ominous, the contents could be benign, tax experts say. Heres what you should do if you receive a letter from the IRS after youve filed your tax return:

Dont panic. Some notices simply inform taxpayers that the IRS has made a correction to their returns, and no further action is required. Occasionally, the IRS sends notices informing taxpayers that they overpaid, says Melissa Labant, tax manager for the American Institute of Certified Public Accountants.

More commonly, taxpayers receive a notice from the IRS because information on their tax returns didnt match information the IRS received from their bank or brokerage firm, says Sandra Martin, an enrolled agent based in Pittsford, N.Y., who is authorized to represent taxpayers before the IRS. For example, you may have failed to report interest on a bank or credit union account because you misplaced a 1099 or never received one, she says. If that led to unreported income, you can usually resolve the problem by mailing the IRS a check.

Respond promptly. If the IRS gives you 60 days to respond, consider that an order, not a suggestion. Ignoring a notice could lead to penalties, liens and seizure of property. The IRS is willing to work with you, But you have to meet them halfway, says Jackie Perlman, analyst at H&R Blocks Tax Institute.

Some taxpayers stash IRS notices with their other tax records, figuring their tax preparer can deal with it at tax time, Labant says. This is a bad idea. Depending on when you receive the notice, it could be several months before your preparer sees the document.

Dont assume the IRS is right. The IRS churns out millions of notices every year, and some are incorrect, Labant says. For example, if the IRS posts an estimated tax payment to the wrong year, you could be assessed underpayment penalties, she says. If you think the IRS is wrong, be prepared to provide records to back up your case.

Keep good records. Make copies of everything you send the IRS in response to a notice, Martin says. If you contact the IRS by phone, write down the name and ID number of the agent who takes your call.

Get help. If a tax professional prepared your return, send the IRS notice to your preparer immediately. Your tax preparer should be able to figure out whether the notice contains any errors and will provide the IRS with the necessary documents, Labant says.

In addition, even minor changes to your tax return could affect next years return, so your tax preparer needs to know about them, Martin says.

Are you a do-it-yourself taxpayer? You may still want to get professional help, particularly if the IRS says you owe a lot of money or wants to audit your return.

While face-to-face audits are rare, the IRS has increased the number of correspondence audits, which are handled through the mail, Labant says. Typically, a correspondence audit deals with just one portion of your return, such as a deduction for charitable contributions, she says. A tax preparer can help you find the documents necessary to support your deduction. In some cases, you may need to file an amended return, Perlman says.

Dont forget your state return. Changes to your federal tax return could affect how much you owe your state. Once youre done with the IRS, you may need to amend your state tax return, Martin says. Otherwise, she says, A couple of years down the road, (the state) will be coming after you, and youll owe interest and penalties.

Dont respond to e-mails purportedly from the IRS. Con artists use official-looking e-mails that appear to be from the IRS to steal financial information from taxpayers. Last year, for example, crooks sent bogus e-mails informing taxpayers that they were candidates for an audit. Recipients were instructed to click on a link and fill in personal information.

The IRS doesnt send e-mails requesting personal information. If you get a suspicious e-mail claiming to be from the IRS, forward it to

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. E-mail her at: Follow on Twitter:


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