Got an IRS Notice? What Massachusetts Taxpayers Should Do Next
Answers to common questions about IRS notices, back taxes, deadlines, audits, collections, and when to contact a tax attorney.
I Got an IRS Notice for Back Taxes. What Should I Do?
Getting a letter from the IRS can be stressful, especially when it says you owe money. But receiving a notice does not mean you are out of options. The first step is figuring out exactly what the IRS is asking for, whether the amount is correct, and what deadlines you are facing.
This page answers some of the most common questions I hear from individuals, professionals, and small business owners after an IRS notice shows up. It also explains the options that may be available and when it may make sense to have a tax attorney step in and deal with the IRS for you.
What is an IRS back-tax notice, and why did I receive one?
An IRS notice is an official letter letting you know that the IRS believes there is an issue with your tax account. Maybe the IRS believes you owe additional tax, there is an unpaid balance from a prior year, a tax return is missing, or the information reported on your return does not match information the IRS received from an employer, bank, or other third party.
The most important thing is don’t ignore the letter. Look at the notice number, the tax year involved, the amount the IRS says you owe, and the deadline to respond. Different IRS notices mean different things and give you different rights and options. Before paying the amount on the notice or responding to the IRS, you should first understand exactly what the IRS is asking for and whether the amount is actually correct.
What do the different IRS notice numbers mean?
Not every IRS letter means the same thing. The notice number can tell you what the IRS is doing and, more importantly, what you may need to do next. For example, a CP2000 generally means the IRS found information that does not match what was reported on your tax return and is proposing a change. A CP503 or CP504 means the IRS is further along in trying to collect an unpaid balance, with a CP504 warning of the IRS’s intent to levy certain property or rights to property.
A Notice of Deficiency is different. It is a formal notice that generally gives you 90 days to file a petition with the U.S. Tax Court if you want to challenge the IRS’s determination without first paying the disputed tax. Different notices come with different deadlines and rights, so knowing exactly which letter you received.
What should I do immediately after receiving an IRS notice?
First, don’t ignore it and don’t panic. Read the notice carefully and figure out what the IRS is asking for, which tax year is involved, how much the IRS says you owe, and when you need to respond.
Gather the documents related to the notice, such as your tax return, W-2s, 1099s, payment records, or prior IRS correspondence. And don’t assume that just because the IRS says you owe a certain amount, the amount is necessarily correct.
Pay particular attention to the deadline. Some IRS notices come with important appeal or Tax Court rights, and missing a deadline can limit your options or allow the IRS to move forward with collection. If you receive a serious collection notice, a Notice of Deficiency, or simply are not sure what the letter means, that is a good time to speak with a tax attorney before responding.
What should I NOT do after receiving an IRS notice?
Don’t ignore the notice, but also don’t rush to respond just because the IRS sent you a letter. Before calling the IRS, sending documents, agreeing to an adjustment, or making a payment, make sure you understand what the notice is about and what your options are.
Be careful about providing incomplete or inaccurate information. What you tell the IRS can affect how the matter moves forward. And simply making a payment does not necessarily resolve the underlying issue or stop collection activity.
Most importantly, don’t miss the deadline. If you are dealing with a large balance, multiple years, unfiled returns, a levy or lien issue, or a notice giving you appeal or Tax Court rights, consider getting professional advice before responding.
What are my options for resolving IRS back taxes?
There is no one-size-fits-all solution for IRS debt. The right option depends on how much you owe, your income, expenses and assets, the type of tax involved, and where you are in the collection process.
An installment agreement may allow you to pay the balance over time. If you cannot afford to pay the full amount, you may qualify for an offer in compromise to settle for less than what you owe. If you are experiencing financial hardship and cannot make payments right now, currently not collectible status may temporarily pause IRS collection efforts. In some cases, you may also qualify for penalty abatement, which can reduce the overall balance.
The important part is figuring out which option actually fits your situation before agreeing to something with the IRS. Sometimes the first option the IRS offers you is not necessarily the only option available.
What is the difference between an IRS audit and an IRS collection notice?
An IRS audit and an IRS collection matter are two different stages of the process. An audit generally means the IRS is examining your tax return and questioning whether the income, deductions, credits, or other items you reported are correct. The IRS is still determining whether additional tax should be assessed.
A collection notice generally comes after a tax liability has already been assessed and the IRS is trying to collect the balance. At that point, the questions may shift to whether the balance is correct, whether penalties can be reduced, and what collection or payment options are available.
Both are tax controversy matters, but they require different strategies. With an audit, the focus is generally on whether you owe the tax. With collection, the focus is generally on what you owe and how the balance should be resolved.
When should I involve a tax attorney instead of handling the IRS myself?
Not every IRS notice requires an attorney. But if the amount involved is significant, you are facing a levy or lien, you received a Notice of Deficiency or serious collection notice, you have multiple years of tax problems, or your business has payroll tax issues, it may be time to get professional help.
A tax attorney can step in, communicate with the IRS on your behalf, review what the IRS has done, protect important appeal and Tax Court rights, and help determine what resolution options are actually available.
Timothy Lau focuses his practice on tax controversy and represents taxpayers in IRS and state tax disputes. This is not tax return preparation. The focus is what happens when there is already a problem with the IRS or a state tax agency and you need someone to help resolve it.
How does working with Lau Legal Services on a tax resolution matter typically begin?
It usually starts with a consultation. We will go through the IRS notice together, figure out what the IRS is asking for, identify any important deadlines, and talk about what options may be available.
If you decide to move forward with Lau Legal Services, the next step is usually obtaining authorization so I can access the relevant IRS records and communicate with the IRS on your behalf. From there, I review the account, determine what actually needs to be addressed, and develop a strategy based on your particular situation.
The goal at the beginning is simple: understand where you stand before deciding where to go next.
What is the IRS response deadline, and what happens if I miss it?
There is no single deadline for responding to the IRS. The deadline depends on the type of notice you received, so one of the first things you should do is identify the notice and the response date.
Some deadlines are especially important. For example, a Notice of Deficiency generally gives you 90 days to file a petition with the U.S. Tax Court. If you miss that deadline, you can lose the opportunity to challenge the tax in Tax Court before paying it. Other notices may carry appeal or collection deadlines that affect what options are available to you.
The earlier you deal with an IRS notice, the more time you have to understand the problem, gather the right documents, and decide how to respond. Don’t put an IRS letter aside just because the deadline seems far away.
What does tax resolution typically cost, and how does billing work?
The cost depends on the type of tax problem, how many tax years are involved, and how much work is needed to resolve it. Some matters may be appropriate for a fixed fee, while more complex or ongoing representation may be billed hourly.
The process usually starts with a paid consultation so we can review the situation and determine what needs to be done. Before Lau Legal Services begins representation, you will receive an engagement agreement explaining the scope of the work and how you will be charged. You should understand what you are hiring me to do and how the billing works before we get started. Acting early may preserve more options and prevent the matter from progressing further.
Can Lau Legal Services help with state tax notices too?
Yes. State tax agencies have their own rules, notices, deadlines, appeal procedures, and collection tools, which can differ significantly from both the IRS and from one state to another. For example, states may have different rules for determining residency or domicile, taxing income earned across state lines, assessing sales or use tax, imposing and abating penalties, pursuing responsible individuals for a business’s unpaid taxes, and collecting outstanding liabilities. A favorable result with the IRS does not necessarily resolve the corresponding state tax issue. Lau Legal Services assists with state tax notice and controversy matters in addition to federal IRS matters, which can be particularly important for individuals and small business owners facing issues at both the federal and state levels.
What is the single most important thing to do right now?
Don’t ignore the notice. Read it carefully, identify the deadline, and figure out what the IRS is asking for before you respond, make a payment, or agree to anything.
If you received an IRS notice and are not sure what it means or what your options are, Lau Legal Services can help. I represent individuals, professionals, and small business owners in IRS and state tax controversy matters.
Let’s open that letter together, figure out where you stand, and determine what to do next.