An envelope from the IRS raises the pulse of even the most organised taxpayer. Most notices, though, are routine: a figure that does not match a form the agency already holds, a payment applied to the wrong year, a question with a one-page answer. Here is how to handle one without making it worse.
First: open it
Notices have deadlines, and the deadline runs from the date on the letter, not the date you got around to reading it. An unopened envelope on the counter is the single most expensive way to handle correspondence from a tax authority.
Find the notice number
Every IRS notice carries a code in the upper right corner — CP2000, CP14, CP501 and so on. That code, not the tone of the letter, tells you what is happening. The agency publishes an explanation of each notice type on its website, and any preparer will recognise the common ones immediately.
Some of the most frequent:
- CP2000 — the income reported on your return does not match what a third party reported. This is a proposed change, not a bill, and it is frequently wrong or incomplete.
- CP14 — a balance is due. The first notice in the collection sequence.
- CP501 / CP503 / CP504 — escalating reminders about an unpaid balance. CP504 is the point at which the language becomes serious and the deadline should not be missed.
- Letter 4883C or 5071C — identity verification before a return is processed. Nothing is wrong; the return is simply on hold until you confirm it was you.
Read what it is actually asking for
Notices generally do one of four things: propose a change, request a document, ask you to verify your identity, or demand payment. The response differs completely, and the deadline is usually stated plainly in the first paragraph. Note it, and work back from it.
The four things not to do
- Do not ignore it. Deadlines pass, proposed changes become assessments, and the options narrow considerably.
- Do not pay a proposed amount just to make it stop — not before checking whether it is correct. Paying is treated as agreement.
- Do not phone in an unprepared explanation. Anything you say becomes part of the record. Written responses, with documents attached, are cleaner and verifiable.
- Do not assume it is a scam — or that it is genuine. The IRS initiates contact by post, not by phone call, text or email demanding immediate payment. If contact arrives another way, verify independently before responding to anything.
What a good response looks like
- Respond by the stated deadline, in writing, and keep proof of postage or transmission.
- Reference the notice number and the tax year on every page.
- Address only what the notice asks about. Volunteering unrelated information broadens the enquiry.
- Attach the documents that support your position — not everything you have, just what proves the point.
- Keep a complete copy of what you sent.
If you owe and cannot pay
Say so, in the response, and ask for an instalment agreement. Interest continues to accrue but the account stays in good standing and collection activity is suspended while an agreement is in place. Penalty relief may also be available where there is reasonable cause or a clean compliance history — but it has to be requested; it is not applied automatically.
When to hand it over
Bring us the notice — unopened is fine — if any of the following apply: the amount is significant, the notice concerns more than one year, it mentions an examination or audit, it relates to a business return, or you simply do not want to deal with it. We read it, explain what it says in plain terms, and respond on your behalf. Most are resolved with one letter and the right attachment.
This article is general information about how the tax rules work, not tax advice for your situation, and the rules change. Speak with a qualified preparer — we are happy to be that preparer — before acting on anything you read here.