Most IRS letters have two options: agree with the changes the IRS is making or send a written explanation of why the IRS is wrong and you are right. This post explains what you should consider when responding to the IRS and gives some examples you can use.
What happens when you get a notice or letter from the Internal Revenue Service?
There are over 100 different IRS notices and letters, but most of them fall into a few general categories.
- You didn’t make a payment or pay enough.
- The IRS wants additional information.
- The IRS is making changes to your tax return.
When you didn’t pay your full balance or the IRS makes changes that say you should have paid more, you may owe additional taxes plus tax penalties.
You do not have to agree with the IRS. You have the right to pay the exact amount of taxes you owe and no more. The IRS knows it doesn’t always have all of the information it needs and gives you a chance to respond.
Depending on the IRS notice or letter, there are usually two ways you’ll be asked to respond.
- More information. When the IRS asks for more information, it isn’t sure whether or not you calculated your taxes correctly. If you don’t provide the requested information, it might recalculate your taxes based on the information it has.
- Final decision with right to appeal. In some cases, the IRS is pretty sure you did your taxes wrong and that it knows what they should be. You’ll get a proposed change and have a certain number of days to appeal. If you don’t appeal, the IRS changes will stand.
How long do you have to respond to an IRS letter or notice?
The deadline to respond to the Internal Revenue Service depends on what letter or notice you receive. The deadline is usually between 30 to 90 days.
Your letter should have a deadline to respond on it.
Note that the deadline is to provide your answer to the IRS. If you want to get help from a tax professional, you should contact one well before the deadline. Whether you send your answer or a tax professional does, the IRS has to get the answer by the deadline on your IRS letter.
If you don’t respond in time, you might face additional penalties plus interest. You could also get a threatening IRS certified letter.
How should you format a letter to the IRS?
There is no magic formula for writing a letter to the IRS. The main thing you need to do is clearly explain why you are right and the IRS is wrong.
Many IRS letters have a form with spaces for written explanations or calculations. Use the IRS response form when possible and attach additional pages when needed. If you want to type your entire response, a simple “see attached” works.
Another reason to use the IRS form is that it has your information including your Social Security Number or Tax Identification Number. This helps the IRS identify you.
If the IRS didn’t include a response form, use a standard business letter template in your word processor. Be sure to include your Social Security Number and the IRS Notice or Letter number you’re responding to.
Where do you send your response to the IRS?
Always send your response to the fax number or address provided in your IRS notice.
There isn’t just one IRS address. They have many addresses around the country for different tax issues and different geographical areas.
Using the wrong address can slow things down or even make the IRS think you didn’t respond at all.
Now, we’ll look at some written explanation sample letters to the IRS for different situations. These are only general examples.
No two situations are exactly the same, so you may need to include more or less information. It’s important to think about exactly what the IRS is asking you and why you believe you’re correct.
If the IRS includes specific instructions, you’ll usually want to follow them, as the IRS is telling you what’s needed to resolve the situation.
If you receive an IRS letter you don’t fully understand, is complicated, or involves a large amount of money, you may wish to talk to a Certified Public Accountant or tax attorney instead of responding on your own.
Request for Supporting Documents
Responding to an IRS request for supporting documents is usually pretty easy.
Often, they’ll ask for specific documents. For example, if they want proof of your mileage deduction, they might ask for your mileage log.
Other times, they might ask for more general proof. For example, they might ask for supporting information about a deduction. You might respond with receipts, invoices, or whatever other information you have.
Most of the time, you can just attach your documents to the response form. You generally don’t need to include a written explanation unless you feel the documents you’re providing don’t tell the full story.
Request for an Abatement
An abatement is a request to remove the penalties owed. This is usually when you realize that you made a mistake and the IRS decision is correct.
The most common abatement is the first-time penalty abatement. You may qualify if, during the last three years, you’ve:
- filed all of your tax returns on time
- haven’t had other penalties
- have paid or made arrangements to pay all of the taxes you owed
The best way to request first-time penalty abatement is actually to call the IRS. They can look up your eligibility on the spot.
Otherwise, you can respond to your notice saying, “I’m requesting the first-time penalty abatement because during the last three years, I’ve filed all of my tax returns, haven’t had any penalties, and have paid or arranged to pay all of the taxes that I owe.”
The IRS also has the discretion to give penalty abatement for reasonable cause for things like:
- Natural disasters
- Deaths in the family
- Bad advice from a tax professional
- Medical issues
For example, you might write, “I am requesting an abatement of the failing to file and failing to pay penalties for reasonable cause. I was in a serious car accident and was in the hospital from March through May. I have since filed my tax return and paid the taxes owed.”
When possible, include documentation of the hardship that you’re requesting penalty abatement for.
Telling the IRS They’re Wrong
When you believe the IRS is wrong, you have the right to show why. How you’ll need to respond depends on how complicated the issue is.
1099 issues are often fairly simple. Here are some common examples.
- “I received a CP2000 notice saying that I did not include income from a Form 1099-NEC. This income was also reported on Form 1099-K, and the 1099-NEC should not have been issued. Attached are statements from the payment processor that issued the 1099-K showing that the payments are from the company that issued the 1099-NEC.”
- “I received a CP2000 notice saying that I did not include income from a Form 1099-K. These were personal transactions rather than taxable income. The payments were from family members reimbursing me for their share of the cost of our vacation that I booked.”
There are many other potential issues, but they all follow under a few common themes.
- This is not taxable income because…
- I qualified for this deduction or credit because…
- My calculations are accurate because…
One important thing is to make sure you understand the applicable law. For example, you don’t want to be telling the IRS your tips aren’t income because they’re gifts, because the IRS has clearly said tips are taxable income under the law.
If you do want to push the limits of the established law, you may want to get professional legal or tax advice. There are gray areas where you can fight the IRS and win, but it can be hard to do without having a tax law expert on your side.
You Already Paid
It’s also not uncommon to get a notice for unpaid taxes when you already paid. It’s usually better to call the IRS in this situation so they can look up your account.
If you recently made a payment, you should know that the IRS sends letters based on data that’s usually a few weeks old. You can check your tax records online or call the IRS to see if the payment was applied to your account after the date of the letter.
Another common issue is that the payment was applied to the wrong tax period. You might not have included enough information with your tax payment or selected the wrong option when you paid online. The IRS could also have made a mistake.
In some cases, the IRS might not cash your check or cash it but not apply it to your account.
Calling the IRS is normally the fastest way to get any payment issues taken care of. If the IRS isn’t answering the phone, you can also send a letter.
Explain that you already paid. Include proof such as your online payment receipt or proof of mailing. If you made a mistake, such as writing the wrong tax year on your check, explain that as well.
You Don’t Have an Explanation But You Can’t Pay
Another situation many people find themselves in is that they know the IRS is right but can’t pay what they owe. The most common solution is to request an installment agreement to pay your balance in monthly payments.
Ignoring an IRS letter only increases the tax penalty. Using an installment agreement or other payment arrangement can reduce the penalties and interest you’ll have to pay. It will also stop the IRS from taking other collection actions against you.