IRS Tax Help: What to Do If You Receive an IRS Letter

Receiving a letter from the IRS can be stressful, but it’s important to stay calm and address it promptly. These notices are often routine and may relate to tax return adjustments, outstanding balances, or requests for additional information. Ignoring them could lead to penalties, interest, or further action.

Understanding why you received an IRS letter and how to respond appropriately can help prevent complications.

Types of IRS Letters

The IRS sends different types of notices, each serving a specific purpose. Some notify taxpayers of a balance owed, while others correct errors on a tax return or request additional details. Understanding the notice helps determine the appropriate response.

Balance Due Notice

A balance due notice informs taxpayers they owe money to the IRS. This can result from underpayment, adjustments, or miscalculations. The notice includes the amount due, a deadline, and payment instructions.

If the balance isn’t paid on time, interest and penalties accrue. The failure-to-pay penalty is 0.5% of the unpaid amount per month, up to 25% of the total tax due. Interest compounds daily based on the federal short-term rate plus 3%. Taxpayers can pay in full, request a payment plan, or submit an offer in compromise. Short-term extensions (up to 180 days) and long-term installment agreements are available, depending on the amount owed.

Return Correction Notice

A return correction notice indicates the IRS found discrepancies in a tax return, often due to misreported income, incorrect deductions, or computational errors. The notice outlines the adjustments and provides an opportunity to dispute them.

For example, if a taxpayer reports $50,000 in wages but their W-2 shows $55,000, the IRS may adjust taxable income accordingly. If the correction results in additional tax liability, the notice will specify the amount due, including any penalties or interest. To dispute an adjustment, taxpayers must respond by the deadline, usually within 60 days, with supporting documents such as pay stubs or an amended return. Ignoring these notices can lead to automatic assessments and further collection actions.

Information Request Notice

An information request notice asks for additional details to verify claims made on a tax return. This is common when a taxpayer claims credits, deductions, or exemptions that require documentation. The IRS may request receipts, bank statements, or proof of dependents.

For example, if someone claims the Earned Income Tax Credit (EITC), the IRS may request proof of income and residency for qualifying children. If supporting documents aren’t provided by the deadline, the credit may be disallowed, and the taxpayer could face an audit or additional tax liability. Responding promptly with accurate records helps prevent delays and further scrutiny.

Confirming the Letter’s Validity

Before taking action, verify that the IRS letter is legitimate. Scammers frequently impersonate the IRS to steal personal information or payments. A genuine IRS notice is always mailed to the taxpayer’s last known address and includes a letter or notice number in the upper right-hand corner. The IRS does not initiate contact through email, text messages, or social media.

Official IRS correspondence displays the agency’s logo, contact information, and a reference to the specific tax year or issue. The letter provides clear instructions on how to respond and where to send payments, typically directing taxpayers to IRS.gov rather than third-party websites. If a notice demands immediate payment via gift cards, wire transfers, or cryptocurrency, it is a scam.

Taxpayers can verify a notice by visiting the IRS website and using the “Understanding Your IRS Notice or Letter” tool, which allows them to enter the notice number for confirmation. If there are doubts, calling the IRS directly at the phone number listed on the official website—rather than the number provided in the letter—can confirm its legitimacy. Reviewing recent tax filings and account transcripts through the IRS’s online portal can also help ensure the letter corresponds to actual tax matters.

Reasons for Requested Documentation

The IRS may request documentation to verify financial information, ensure compliance with tax laws, or clarify discrepancies in reported income. These requests often arise from mismatches between taxpayer filings and third-party reports, such as W-2s or 1099s, which the IRS receives independently. If an employer or financial institution reports different figures than what a taxpayer includes on their return, the IRS may ask for additional records to reconcile the difference.

Supporting documentation is also commonly required for business income or self-employment earnings. Small business owners, freelancers, and independent contractors often claim deductible expenses that reduce taxable income, but without proper records, these deductions may be disallowed. The IRS may request receipts, bank statements, or mileage logs to confirm business expenses. Inadequate records can lead to adjustments that increase tax liability.

Foreign financial assets are another area where the IRS frequently seeks verification. U.S. taxpayers with foreign bank accounts, investments, or business interests may need to file additional forms, such as the Foreign Bank Account Report (FBAR) or Form 8938 under the Foreign Account Tax Compliance Act (FATCA). If these disclosures are incomplete or missing, the IRS may request account statements or other supporting documents. Non-willful FBAR violations can result in penalties of up to $15,611 per violation in 2024, while willful violations can lead to fines exceeding $100,000 or 50% of the account balance, whichever is greater.

High-income earners and individuals with complex investment portfolios may also receive documentation requests related to capital gains, rental income, or retirement distributions. The IRS cross-checks tax returns with brokerage firms, property management companies, and retirement account custodians to ensure reported earnings match actual transactions. If a taxpayer sells stocks, real estate, or other assets, the IRS may seek purchase records to verify cost basis calculations, which impact capital gains tax liability. Incorrect reporting of capital gains could result in additional taxes, along with interest accruing from the original due date of the return.

Addressing Outstanding Tax Obligations

Once an IRS notice confirms an outstanding tax liability, reviewing the notice thoroughly ensures the balance is accurate and reflects all applicable deductions, credits, and payments. If discrepancies exist, requesting an account transcript from the IRS can provide a breakdown of assessed taxes, penalties, and adjustments. Taxpayers may also file an amended return using Form 1040-X if errors or omissions led to an inflated balance.

For those unable to pay the full amount immediately, structured repayment options exist. The IRS offers installment agreements based on the outstanding balance and the taxpayer’s ability to pay. Short-term payment plans are available for balances under $100,000, while long-term installment agreements apply to debts of $50,000 or less and require financial disclosure through Form 9465. Interest accrues on unpaid balances, calculated using the federal short-term rate plus 3%, compounded daily.

In cases of financial hardship, the IRS may classify a taxpayer as “Currently Not Collectible” (CNC), temporarily halting enforcement actions like liens or levies. To qualify, taxpayers must submit Form 433-A or 433-F, detailing income, expenses, and assets. While CNC status provides relief, interest continues to accrue, and the IRS may periodically reevaluate financial standing.

Consequences of Not Responding

Failing to address an IRS notice can lead to escalating penalties, increased interest, and enforcement actions. The IRS begins with automated reminders, but if a taxpayer remains unresponsive, the agency can take more aggressive collection measures.

One immediate consequence is the accrual of additional penalties and interest. The failure-to-pay penalty increases monthly, while interest compounds daily, making even a modest tax debt grow quickly. If the IRS determines that a taxpayer is willfully ignoring their obligations, they may issue a Notice of Federal Tax Lien, which attaches to assets such as real estate and personal property, affecting creditworthiness. Beyond liens, the IRS can initiate wage garnishments, levy bank accounts, or seize assets to satisfy outstanding debts. In extreme cases, prolonged noncompliance can result in criminal charges, particularly in instances of tax evasion or fraudulent filings.

Seeking Professional Support

Navigating IRS notices and tax obligations can be complex, and professional assistance may be beneficial, especially when dealing with large balances, disputed amounts, or potential audits. Tax professionals, such as enrolled agents, certified public accountants (CPAs), and tax attorneys, can provide guidance on resolving issues efficiently while ensuring compliance with tax laws.

A tax professional can review IRS correspondence, identify errors, and negotiate on a taxpayer’s behalf. If a taxpayer qualifies for penalty abatement due to reasonable cause—such as a medical emergency or natural disaster—a representative can submit the necessary documentation to request relief. Additionally, tax attorneys can assist in cases involving liens, levies, or audit defense, ensuring that a taxpayer’s rights are protected. For those struggling with significant tax debt, professionals can explore options like Offers in Compromise, which allow taxpayers to settle for less than the full amount owed if they meet strict financial hardship criteria.