Tuesday, October 25, 2011

A Letter from the IRS: Good News or Bad News?


The IRS sends letters to taxpayers for a variety of reasons. Usually, the letter is a notice stating that you owe additional taxes because you failed to report income or for some other reason. However, the IRS also sends letters if it believes a taxpayer is owed an additional refund that could be paid if an amended return were filed. Before fear strikes, read the letter carefully to determine what you must do.

Check the Number of the Notice

The IRS has resigned its notices to make it clearer to a taxpayer why he or she is receiving the letter. There are dozens of different types of notices and other letters. Here is a rundown of some of the more common notices (additional information about notice numbers can be found here).
  • CP01H: The IRS cannot process your return because the Social Security number of the taxpayer or spouse belongs to someone who died prior to the current year. The Social Security Administration provides this information to the IRS. If you received this notice, you may simply have made a typo on your Social Security number, which is easy to correct.
  • CP04: The IRS believes you may be eligible for the additional child tax credit, which may entitle you to a tax refund.
  • CP10: The IRS made corrections to your return because of miscalculations. This affected the amount of estimated tax you wanted to apply to next year's taxes.
  • CP11: The IRS made changes resulting in an underpayment. You can accept the IRS corrections or write back that you disagree. The letter tells you what to do in this case.
  • CP11A: The IRS made corrections because of miscalculations in the refundable earned income credit and you owe taxes to the government.
  • CP21B: The IRS made corrections that you requested and they result in a tax refund. Expect to receive the refund within two to three weeks of the notice.

Take Action

Do not ignore any letter you receive. You may have to write back to the IRS or telephone the service to discuss your letter. You may need to send copies of certain statements, checks, or other receipts to prove a questionable item; keep the originals with the copy of your tax return and other receipts.
Important: When calling the IRS about a notice, be sure to write down the IRS employee's identification number, which is given automatically at the start of every call. This will help you if you need to call back or in case you follow IRS advice that turns out to be incorrect.

Work with an Expert

When in doubt, check it out. Contact a tax advisor who can explain the impact of the notice on you and what action, if any, to take. The advisor's fees may be less than the tax you would otherwise have to pay without the advisor's help.

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