There is probably nothing scarier than a letter from the IRS. But if you know what to do with the notice, it takes away much of that terror. Before you take action, be sure to find out if it's actually the IRS trying to contact you.
Make Sure the Letter Is Not a Fake
The IRS has a list of Dos and Don’ts for when you receive a notice by letter. But they missed one: Be sure it’s really from the IRS and is not a scam—while the IRS only contacts taxpayers by letter, it’s important to know if your letter is a fake IRS letter scam.
Look carefully at the information about the sender. The letter should include the official IRS symbol and the return address should say, “Department of the Treasury, Internal Revenue Service.” If you see any other organization, like “Bureau of Tax Enforcement,” where they are asking you to mail a check to the IRS, that’s not correct; checks are mailed to the “U.S. Treasury.” If you aren’t sure, call the IRS at 800-829-1040.
If you call the number on the letter, they are likely to try to convince you they are the “real” IRS.
If you received a notice that looks like it’s from the IRS by email, text, or phone call, it is a scam. The IRS will only contact you for the first time about an issue by mail.
Notices about Business and Personal Income Taxes
You or your business might receive an IRS notice about income taxes for several reasons:
- Something on your return was incorrect
- You didn’t report all of your income
- You are being audited
For example, the most common notice is a CP2000 Notice, which notifies you that you have a “proposed amount due.” Form CP2000 is sent when the IRS believes you haven’t reported all your income. In other words, there is a difference between the income you reported on your tax return and the income reported to the IRS by someone else, such as an employer.
Small businesses report business income on Schedule C: Profit and Loss from Business. This information is also included on your federal income tax return on Form 1040. If you receive a CP2000 Notice, your business income may be the reason for the notice.
If your business is a partnership, a multiple-member LLC, an S corporation, or a corporation, your notice will relate directly to your business tax return.
The IRS’s reasons for sending an income tax return notice include:
- You have a balance due
- You are due a larger or smaller refund
- They have a question about your tax return
- They need to verify your identity
- They need additional information
- They changed your return
- They need to notify you of delays in processing your return
But these reasons don’t get to the issue. What you need to know is the reason you have a balance due or what additional income the IRC needs. That’s why it’s important you read the notice carefully.
Confirmation Letters for Identity Theft Protection
In an effort to protect your business against identity theft, the IRS may send you a confirmation letter.
If you receive one of these letters, respond quickly to avoid a delay in the processing of your tax return or your refund.
- Letter 6042c asks you to confirm information about your business, like address and business tax id number.
- Letter 5263C - asks you to confirm information about the responsible party for your business (the person responsible (the person responsible for overall decision-making).
- Letter 6217C is a confirmation letter from the IRS letting you know they received your response to one of the other letters.
If this is your business, answer the question and provide the information requested within 30 days. If this isn't your business, sign and date the statement indicating no affiliation and return the letter within 30 days.
The IRS will not ask you for information through an email or on the phone, only by letter. if you think the letter looks suspicious, If, when you search for your notice or letter using the Search on this page, contact the IRS at 800-829-1040
How to Read a CP2000 Notice
The CP2000 is one of the most common IRS notices, and the format is similar for all other IRS notices. After you have checked to make sure the CP2000 notice is definitely from the IRS, look at the form.
- Note that the notice says, “We are proposing changes…” and “This is not a bill.”
- Note the tax year and the form, and if it’s a 1040 form
- The summary of proposed changes includes interest and penalties; note the date when the payment is due
- Note “What you need to do immediately” if you need more time to respond
- Check the section titled “Explanation of changes to your 20xx Form 1040”; it gives you details of what was reported from others and what you didn’t report
- Note that you have the right to disagree with the proposed changes to your tax return
In any IRS process, you have the right to appeal a decision, including taking the dispute to the Tax Court.
Common Reasons for an IRS Notice for Business Income Taxes
Self-employment Tax. Self-employed business owners often forget they must include a calculation and payment for self-employment taxes on their tax returns. Self-employment taxes are for Social Security and Medicare, the same tax employees and employers pay. The self-employment tax is based on your net income from Schedule C and it’s calculated on Schedule SE.
Reporting 1099 or W-2 Income. Another common reason for an IRS notice is the failure to report income. If you were paid as an employee (W-2 income) or as a contract worker (1099-MISC income), your employer filed that W-2 or 1099 with the IRS. The IRS checks to see that both the payer and payee file the form, reporting your income. If you don’t report the income, the IRS will find out.
IRS Audit Letter
An audit letter from the IRS informs you that you are being audited. The letter will include the tax year and the form (1040 or other). It will list the issues to be reviewed and what you must bring with you.
Other IRS Notices For Businesses
Backup Withholding Notice
If you pay non-employees, you may receive a backup withholding notice from the IRS. This notice tells you that you must begin withholding income taxes from someone (not an employee) you are paying to do work for you. The backup withholding is required if the IRS doesn’t have information about the taxpayer, most commonly because the taxpayer ID number of that person is missing or incorrect.
Employment Tax Notices
The IRS may send your business a notice for issues with employment taxes. Most often these are for failing to file a report or failing to make a payroll tax deposit when it’s due.
- Failing to file annual information returns reporting annual income for employees or non-employees
- Failing to make a payroll tax deposit when due
- Failing to file employment tax reports (like Form 941 for quarterly wage and tax reports)
- Failing to comply with information reporting requirements including reporting Taxpayer ID numbers
What to Do With an IRS Notice
When you receive an IRS notice of any kind:
- Respond within the deadline you are given. If you need more time to get information together, let the IRS know that.
- Complete the Notice Response form if that applies or follow the instructions on what to do.
- Don’t ignore the notice or hope it will go away! Fines and penalties keep adding up until the issue is resolved.
If you are not sure how to respond to an IRS notice or how to get the tax information you need, contact a tax professional who can represent you with the IRS.