What to Do If You Receive IRS Letter 6470
Learn why you received IRS Letter 6470, how to verify your information, and the steps to respond effectively to avoid potential issues.
Receiving a letter from the IRS can be stressful, especially if you’re unsure why you got it. Letter 6470 often relates to discrepancies in tax filings or potential adjustments to your account. While it may not always mean you owe money, it’s crucial to review the details and take appropriate action. Ignoring this notice can lead to complications, so understanding what steps to take is essential.
Common Reasons for Receiving the Letter
Letter 6470 is typically sent when the IRS identifies inconsistencies in reported income, tax credits, or deductions. A common trigger is a mismatch between the income reported on your tax return and what the IRS receives from third parties, such as employers, banks, or investment firms. If a W-2 or 1099 form shows higher earnings than what was filed, the IRS may flag the discrepancy and request clarification.
Tax credits, particularly the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC), are another frequent issue. If the IRS determines that a credit was claimed without meeting eligibility requirements, they may adjust the return. This often happens when dependents are claimed by multiple taxpayers or when income exceeds the threshold for a credit.
Self-employed individuals and gig workers are more likely to receive this letter due to unreported or underreported income. The IRS cross-references tax filings with 1099-NEC and 1099-K forms, which report non-employee compensation and third-party payment transactions. If these amounts don’t align with what was declared, the agency may request additional information.
Documents to Confirm Your Information
Before responding to IRS Letter 6470, gather documentation to verify your tax return details. Start by reviewing your tax transcript, accessible through the IRS’s online account portal. This document summarizes reported income, tax payments, and any IRS adjustments. Comparing it with your original tax return can help identify discrepancies.
If the letter concerns deductions or expenses, locate receipts, invoices, or bank statements that support the amounts claimed. For business expenses, ensure records comply with IRS guidelines defining ordinary and necessary business expenses. If charitable contributions are questioned, obtain acknowledgment letters from the organizations, as donations over $250 require written confirmation.
For investment income, brokerage statements and Form 1099-B help reconcile capital gains or dividend earnings. If the IRS indicates an underreported sale of securities, reviewing cost basis records can clarify any errors. Taxpayers with rental properties should gather lease agreements and expense records to verify rental income and deductions.
Ways to Respond
Once you understand why you received IRS Letter 6470 and have gathered the necessary documentation, determine how to address the issue. The letter outlines a deadline for response, and missing it can lead to penalties or adjustments to your tax return.
If you disagree with the IRS’s findings, submit a written explanation with supporting documents. The response should be clear and structured, referencing specific figures and forms. For example, if the IRS claims you underreported income but you have records showing otherwise, highlight the discrepancies and include copies of relevant tax forms, such as corrected W-2s or 1099s. Send your response via certified mail with a return receipt to ensure proof of delivery.
If you agree with the IRS’s adjustments, follow the instructions in the letter to sign and return the proposed changes or make necessary corrections. If the changes result in a refund adjustment, the IRS will typically process it automatically. If additional tax is owed, you may need to explore payment options.
Payment Arrangements
If Letter 6470 results in a tax liability, resolving the balance quickly can prevent further financial strain. The IRS offers multiple payment options. Paying in full immediately avoids interest and penalties, which accrue daily at the federal short-term rate plus 3%. Payments can be made electronically through IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or by check or money order.
For those unable to pay in full, an installment agreement allows payments over time. A short-term plan (under 180 days) has no setup fee, but interest and failure-to-pay penalties continue to apply. Longer-term plans require a setup fee ranging from $31 to $225, depending on the payment method and whether the application is completed online or by mail. Automatic withdrawals reduce costs and minimize the risk of missed payments.
Taxpayers facing financial hardship may qualify for an Offer in Compromise (OIC), which allows settlement for less than the full amount owed. Eligibility is based on income, expenses, asset equity, and ability to pay. Submitting an OIC requires a non-refundable application fee and an initial payment unless the taxpayer meets low-income criteria.
Consequences for Ignoring the Notice
Failing to respond to IRS Letter 6470 can lead to financial and legal consequences. The IRS may assume the proposed adjustments are correct and proceed with changes to your tax return, potentially increasing your tax liability. If additional taxes are assessed, penalties and interest will begin accruing from the original due date of the return. Failure-to-pay penalties start at 0.5% of the unpaid tax per month, up to a maximum of 25%. Interest compounds daily, making delays costly.
Beyond financial penalties, continued inaction can trigger enforced collection measures. The IRS has broad authority to recover unpaid taxes, including issuing a Notice of Federal Tax Lien, which can impact creditworthiness. If the debt remains unresolved, the agency may initiate wage garnishments, bank levies, or asset seizures. In extreme cases, if the IRS suspects willful tax evasion, civil fraud penalties could apply, carrying a penalty of 75% of the underpaid tax. Taxpayers who ignore multiple notices risk having their case assigned to the IRS’s Automated Collection System or a revenue officer, increasing the likelihood of enforcement actions.