SOURCE: Graff, Ballauer & Blanski, P.C.

Graff, Ballauer & Blanski, P.C.

August 14, 2012 14:50 ET

Don't Panic Over IRS Letter, Suggests Graff, Ballauer & Blanski, P.C.

Northfield, IL CPA Offers 8 Tips for Handling IRS Notices

GLENVIEW, IL--(Marketwire - Aug 14, 2012) - Most people think the tax season ends on April 15. But many people are surprised during the summer months to find the Internal Revenue Service sending them a notice requesting more information, according to tax experts at Graff, Ballauer & Blanski, P.C.

Michael Blanski, president of the Northfield, IL accounting, auditing and consulting firm, explains that the IRS aggressively pursues those taxpayers whose tax return information doesn't match-up or compute with information the IRS has on file.

"Our first advice to taxpayers is don't panic if you receive correspondence from the IRS," says Blanski. "We estimate that nearly 60 percent of the notices issued are incorrect." 

Part of the problem is the sheer volume of tax returns and the use of computerized programs to scan tax returns for errors. The IRS receives more than 120 million tax returns a year, and it sends out some 200 million pieces of correspondence annually. Because of the e-file system that a majority of taxpayers use and the matching program that the IRS has implemented, a human being typically has not looked at the initial letter before it is mailed. 

For example, a letter may be sent for incorrectly recording interest income as dividend income. Interest income is supposed to be reported on line 8 and dividend income on line 9, so the computer won't match up your interest and dividend statements to the amount you actually reported. Reporting the correct income amount on the wrong lines will cause the IRS computer to indicate that you have underreported your income.

Simple computation errors are also a source of many IRS notices. Or there may be a discrepancy in sending information for the wrong year, such as dollar amounts on a 1099 being picked up incorrectly for a given tax year. 

Taxpayers can handle many common issues by themselves, but citizens may want to rely on a CPA or other tax professional for more complicated situations.

Based on Blanski's experience and guidelines from the IRS itself, here are eight helpful tips if you receive a notice from the IRS.

1) Do not try to correspond with the IRS by email. Because of confidentiality issues the IRS will not respond to your email inquiries.

2) The notice you receive normally covers a very specific issue concerning your tax return. As discussed before, the notice is normally generated about a very specific issue.

3) Read the letter and pay attention to the specific instructions that you have to follow in order to satisfy the inquiry. If the IRS asks for specific information, provide that information only. 

4) If you receive a correction notice, you should review the notice and compare it with the information on your return. Correction notices are often incorrect. It can be burdensome to deal with the IRS in trying to correct the error, if the notice is wrong you should not pay it.

5) If you agree with the correction to your account, then usually no reply is necessary unless a payment is due.

6) If you do not agree with the correction notice, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider.

7) Most correspondence can be handled without calling or visiting an IRS office. The IRS is in the process of closing about 40 offices throughout the country. They really don't want you to call and visit them. If you really want to call or make a visit, be prepared for long wait times.

8) It is very important that you keep copies of any and all correspondence with your records. 

Blanski also reminds taxpayers to be aware of the deadlines and timelines for dealing with IRS notices. The taxpayer has 30 days to respond to an IRS notice, but a response from the IRS may take as long as 60 days. For most correspondence issues, it may take as long as six months before matters are resolved.

And in the unlikely event that a taxpayer incorrectly receives a check from the IRS, Blanski has one final piece of advice. "Hold onto the check until the tax matter has been properly resolved."

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