What to do if you get an IRS notice

What to do if you get an IRS notice

by CA Miraj Baldha, CPA

 2024-12-12

Inflation Reduction Act prompts taxpayer questions about IRS enforcement

One of the most impactful provisions in the new Inflation Reduction Act will grant $80 billion to the Internal Revenue Service over the decade – much of that earmarked for stepped-up enforcement. While both Treasury Secretary Janet Yellen and former IRS Commissioner Charles Rettig have said additional enforcement efforts will not target small businesses or the middle class, many taxpayers may still be wondering how to prepare for the potential of additional IRS scrutiny.

Here are a few frequently asked questions about IRS enforcement.

What should you do if you get an IRS notice?

If you receive an IRS notice, there are two immediate actions you should take:

1. Verify the authenticity of the notice. Remember the IRS does not initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. If you have been contacted through one of these channels, it may be a scam. The IRS initiates most contacts through regular mail delivered by the United States Postal Service. To verify if a letter is legitimate, go to IRS.gov and search for the number of the letter, notice, or form. The IRS provides descriptions of its notices and letters, which can be identified by the code in the top right corner of the notice or letter.
2. Consider contacting a professional tax advisor to assist in the process. Whereas some IRS notices may be quickly addressed by showing the right documentation, other notices may require the assistance of a tax professional. And you should always reach out to a professional tax advisor when you are selected for an IRS examination (aka IRS audit).

What are the common types of actions the IRS can take against you, and what can you do?

There are typically four types of actions the IRS can take against a taxpayer:

1. The IRS can send a notice assessing additional income and penalties should a taxpayer fail to include amounts reported by a third-party on a Form 1099 or Schedule K-1. These notices are often issued as part of the IRS’s Automatic Underreporter (AUR) program.
2. The IRS could initiate a campus examination (also known as a correspondence examination), which uses data analytics to identify potentially questionable deductions, expenses, or credits on an original or amended return.
3. The IRS could initiate a field examination, which is different from a campus examination. A field examination takes two forms: the general program examination and the team examination program. The general program examination is typically conducted by a revenue agent who will visit an organization’s location. A team examination concerns large, complex organizations, and may involve a team of examiners.
4. The IRS could assess penalties for failure to file informational returns, which often occurs in the international context.

In all instances, you should not ignore correspondence from the IRS. Taxpayers should endeavor to make timely and complete responses to requests for information. If you have any questions regarding an IRS action, there are phone numbers included with all IRS correspondence that you can contact for more information. And you should consider contacting a professional tax advisor to assist with the process.

How can you avoid IRS actions?

Because the IRS randomly selects taxpayers for examinations, not all IRS actions can be avoided. However, taxpayers can mitigate the risk of an examination by properly and timely reporting all income and expenses, including amounts reported on Forms 1099 and Schedules K-1. In addition, to the extent a taxpayer has international exposure, they should ensure that all necessary forms are filed.

Going forward

With new legislation in play and increased funding for the IRS already here, taxpayers should be proactive about communicating with their tax advisors about any IRS notices they may receive or any questions they may have about their 2024 tax bill. High-income taxpayers will feel the impact of the stepped-up enforcement from the Inflation Reduction Act more acutely, but all taxpayers should consider getting a jumpstart on tax planning for their personal and business taxes this year. Contact me or another Kaufman Rossin tax professional to discuss your tax situation, including how you can mitigate your risk of an IRS audit and minimize your tax exposure.