What to Do If You Receive an IRS Letter 950

Receiving a notice from the Internal Revenue Service can be an unsettling experience. An IRS Letter 950 is a specific type of correspondence, often called a “30-day letter,” that arrives after the completion of an office or field audit. Its purpose is to formally propose changes to your tax return based on the examiner’s findings. This letter provides a distinct timeframe for you to respond before the IRS proceeds with assessing the additional tax.

The letter itself is not a bill but rather the start of a new phase in the audit process, presenting you with a set of choices and deadlines. It signifies that the initial examination is over and the IRS has calculated a proposed deficiency, meaning it believes you owe more tax, or in some cases, an overassessment, where you may have overpaid.

Understanding the Proposed Changes

Letter 950 typically functions as a cover letter for a more comprehensive report detailing the auditor’s findings. This report, often a Form 4549, Income Tax Examination Changes, is the document that contains the specific adjustments the IRS is proposing to your return. It provides a line-by-line breakdown of the changes, showing the original figures from your tax return, the corrected figures according to the IRS, and the resulting adjustment. Each change should be accompanied by an explanation, giving you insight into the examiner’s reasoning for the disallowance of a deduction or the inclusion of additional income.

The examination report calculates the proposed additional tax, which is the difference between your original tax liability and the corrected amount. The report will also show any applicable penalties, such as those for accuracy-related issues or late payments, and the interest that has accrued on the unpaid tax balance. Carefully reviewing Form 4549 is necessary to grasp the financial implications of the proposed changes and to identify specific points of disagreement with the IRS’s position.

Your Response Options

Upon receiving Letter 950 and the examination report, you have three distinct paths you can follow, each with a different outcome. The first option is to agree with the proposed changes. If you find the adjustments to be correct, you would sign the enclosed agreement form, such as the Form 4549, and return it to the IRS. This action authorizes the IRS to assess the additional tax, and you will subsequently receive a bill for the amount due, including any penalties and interest.

A second option is to disagree with the findings and exercise your right to an appeal. This path is for taxpayers who believe the examiner’s conclusions are incorrect based on the facts or the application of tax law. To pursue this, you must submit a formal written protest to the IRS office that sent you the letter, requesting a conference with the IRS Independent Office of Appeals.

The final choice is to do nothing and not respond within the 30-day period specified in the letter. This inaction will cause the IRS to issue a Statutory Notice of Deficiency, also known as a “90-day letter.” This subsequent notice gives you 90 days to file a petition with the U.S. Tax Court if you wish to dispute the tax. If you do not petition the Tax Court within that timeframe, the IRS will assess the tax and begin collection procedures.

Preparing an Appeals Request

Choosing to appeal the findings in Letter 950 requires the preparation of a formal written protest. A formal protest is required for proposed changes exceeding $25,000 for any tax period, as well as in all cases involving employee plans, exempt organizations, partnerships, and S corporations, regardless of the amount.

The protest must begin with your name, address, taxpayer identification number, and a daytime phone number. It needs to include a clear statement that you are appealing the findings to the Office of Appeals and reference the tax periods involved. You must create a list of the specific proposed adjustments with which you disagree.

For each disputed item, you must provide a statement of facts that supports your position. This factual narrative should be followed by a statement of the law or other authority that you are relying on to support your argument. To finalize the document, the protest must include a specific declaration signed under penalties of perjury. This declaration states that the facts presented in the protest and any accompanying documents are true, correct, and complete to the best of your knowledge and belief.

Submitting Your Appeal

The protest letter should be mailed directly to the IRS address provided in the Letter 950 you received. It is important not to send the protest to the IRS Independent Office of Appeals, as this will only delay the process. The IRS office that conducted the initial audit will first review your protest to see if the case can be resolved without forwarding it to Appeals.

After the originating office reviews your protest and if the issues remain unresolved, your entire case file will be transferred to the IRS Independent Office of Appeals. You should then expect to be contacted by an Appeals Officer who will be assigned to your case. This officer will schedule a conference, which can be held by phone, video, or in person, to discuss the disputed issues and work toward a potential settlement.