What Is a 3219c Letter From the IRS and How Should You Respond?

Receiving a 3219c letter from the IRS can be an unsettling experience for taxpayers. This notice, related to discrepancies in tax returns, requires prompt attention. Understanding its implications is crucial as it directly affects your financial standing with the IRS.

Primary Factors That Trigger This Notice

A 3219c letter is typically issued due to discrepancies identified during the processing of a tax return. A common cause is a mismatch between the income reported by the taxpayer and the information the IRS receives from third parties, such as employers or financial institutions. For example, if a taxpayer reports $50,000 in wages but the IRS receives a W-2 form showing $60,000, this discrepancy can trigger the notice. The IRS’s Automated Underreporter (AUR) program flags such mismatches by cross-referencing reported income with third-party data.

Another frequent issue is the omission of income streams like dividends, interest, or capital gains, often documented on forms such as 1099-DIV or 1099-INT. The IRS relies on these forms to verify taxable income. Discrepancies in claimed deductions or credits, such as the Earned Income Tax Credit (EITC), can also lead to a 3219c letter. When the IRS’s records do not align with a taxpayer’s claims, additional scrutiny is applied.

Mandatory Timeframes for IRS Requests

After receiving a 3219c letter, taxpayers typically have 30 days from the letter’s date to respond. This period allows time to review the notice, gather supporting documentation, and address discrepancies. Taxpayers can either agree with the IRS’s proposed changes or contest them by providing evidence.

Failing to respond within this timeframe may result in the IRS implementing the proposed changes, which could include adjustments to taxable income and recalculated tax liabilities. These adjustments often lead to additional taxes owed, as well as penalties and interest dating back to the original return’s due date. Taxpayers needing more time to respond can request an extension within the initial 30-day window, subject to IRS approval.

Consequences for Non-Compliance

Ignoring a 3219c letter can result in significant financial consequences. If a taxpayer does not respond, the IRS may proceed with adjustments to the tax return, leading to increased tax liabilities, penalties, and interest. Penalties for underpayment are calculated at 0.5% of the unpaid amount per month, up to a maximum of 25%, while interest compounds daily at a rate based on the federal short-term rate plus 3%.

Non-compliance may also prompt further IRS scrutiny, including audits of the taxpayer’s financial records. Such audits can uncover additional discrepancies, leading to further penalties. Repeated non-compliance damages a taxpayer’s credibility and increases the likelihood of future audits, which can be particularly harmful for businesses by undermining their financial transparency and relationships with investors or lenders.

Documentation for Verification

Responding to a 3219c letter requires assembling detailed documentation to substantiate your claims. Taxpayers should gather records such as pay stubs, bank statements, brokerage statements, and tax forms like 1099s or W-2s. These documents should directly address the discrepancies outlined in the IRS notice. For example, if the notice involves unreported dividend income, providing brokerage statements that detail all dividend payments for the relevant tax year is essential.

Accurate records of deductions and credits are equally important. For discrepancies involving deductions, such as business expenses, taxpayers should present receipts, invoices, or contracts. For instance, disputing a denied business expense deduction requires invoices that clearly outline the nature and purpose of the expense in compliance with IRS regulations. Providing thorough and organized documentation helps demonstrate that income and deductions were accurately reported.