What Does a Letter From the IRS Mean?

Receiving a letter from the Internal Revenue Service (IRS) can be unsettling for many taxpayers. While often a routine communication, these letters serve various purposes, from requesting information to notifying you about tax account changes. This article aims to demystify IRS letters, helping you understand their common reasons and how to address them.

Common Reasons for IRS Letters

The IRS sends many letters and notices, each communicating a specific message or request. Understanding your letter’s general category is the first step in determining its importance and required action. The notice number, often found in the top or bottom right corner (e.g., CP14, CP2000, Letter 5071C), can help identify its purpose.

A frequent reason for an IRS letter is a balance due notice. This type of letter, such as a CP14, indicates you owe additional tax, penalties, or interest. It specifies the amount due and provides payment instructions. Another common notice, the CP2000, is sent when information on your tax return does not match data the IRS received from third-party sources, like employers or financial institutions. This notice proposes changes to your tax liability based on these discrepancies.

Letters regarding refund inquiries or adjustments are also common. A CP12 notice, for instance, informs you the IRS has made changes to your tax return, resulting in an adjusted refund. This could mean your refund has increased, decreased, or been eliminated. Similarly, a CP21B notice communicates that the IRS has made changes to your return, leading to a refund.

The IRS may send an audit notice if your tax return has been selected for examination. Many IRS audits are “correspondence audits,” conducted by mail. These letters typically request specific documentation to verify items reported on your return, such as deductions or credits.

Identity verification is another reason for an IRS letter. Letters like 5071C or 4883C are sent when the IRS needs to confirm your identity before processing a tax return or issuing a refund, often due to suspected identity theft or unusual activity. These letters are a protective measure, ensuring refunds go to the rightful taxpayer. The IRS will not process the return until you verify your identity.

The IRS might also send letters requesting missing information or documents or providing information notices. This could involve a request for a missing W-2 or 1099 form, or clarification on a reported item. Information notices might confirm a change of address or provide general updates about your account.

Understanding and Responding to Your Letter

Receiving an IRS letter requires carefully reading the entire document. Pay close attention to the notice date and any specified response deadlines, as missing these can lead to additional penalties or loss of appeal rights. The letter typically includes a notice number, a tax year, and contact information for the IRS, which are important details for any subsequent communication.

Verifying the letter’s legitimacy is a first step to protect against scams. The IRS primarily initiates contact via physical mail, not unexpected emails, texts, or phone calls demanding immediate payment via unusual methods like gift cards or wire transfers. If you suspect a letter is fraudulent, contact the IRS directly using the official phone number found on the IRS website, not one provided in the suspicious letter.

Once the letter’s authenticity is confirmed, gather all relevant information and documents mentioned in the correspondence or related to the issue. This may include copies of the specific tax return, W-2 forms, 1099 forms, receipts, cancelled checks, or other financial records. For example, if the letter relates to income discrepancies, gather income statements.

Compare the information in the IRS letter with your records to identify any discrepancies. This comparison helps you understand the IRS’s position and determine if you agree or disagree with their findings. Documenting your comparison and supporting evidence is part of preparing your response.

If a written response is required, ensure it includes the notice number, your Social Security Number, a clear explanation of your position, and copies of all supporting documents. Never send original documents; always keep copies of everything you send to the IRS. Consider sending correspondence via certified mail with return receipt requested for proof of delivery. If the letter provides a specific phone number for inquiries, have the notice number and your Social Security Number ready before calling.

Resolving Discrepancies and Payment Issues

After understanding your IRS letter and preparing your information, the next phase involves resolving the issue, especially if you disagree with the IRS’s findings or face payment difficulties. If you believe the IRS made a mistake, such as an error in calculation or an oversight of reported income or deductions, provide corrected information or additional documentation to support your original tax return. Submit the necessary evidence to correct the IRS’s records.

If you disagree with the proposed changes, you have rights, including the right to formally dispute the claim. This process may involve submitting a written explanation and supporting documents to the IRS. Should the disagreement persist, you have the right to appeal the IRS’s decision. This appeals process allows for an independent review of your case within the IRS system.

If the letter indicates you owe money and cannot pay the full amount immediately, several payment options are available. An Installment Agreement allows monthly payments for up to 72 months. You can apply for this agreement, often online or by submitting Form 9465, to pay off your tax debt over time. Penalties and interest continue to accrue on the unpaid balance under an installment agreement, though at a reduced rate.

An Offer in Compromise (OIC) allows taxpayers to resolve their tax liability with the IRS for a lower amount than what they originally owe. This option is for those facing financial hardship and who meet specific criteria demonstrating an inability to pay the full amount. The IRS evaluates your ability to pay, income, expenses, and asset equity when considering an OIC.

For those experiencing short-term financial difficulty, a Temporary Delay of Collection may be an option. This arrangement temporarily postpones tax collection until your financial situation improves. During this period, penalties and interest continue to accrue, and the IRS may still file a Notice of Federal Tax Lien. This option is for when you can demonstrate that paying your tax liability would create an undue hardship.