By: Alyssa Gassett

Receiving an IRS notice can be stressful, but it is important to remember that not all notices indicate an audit or serious issue. In many cases, they simply provide updates or request additional information. Understanding what each notice means and how to respond appropriately can help avoid unnecessary anxiety and resolve the matter quickly. We are going to break down the most common IRS notices and what actions to take when one is received.

1. CP2000: Underreported Income

The CP2000 notice is issued when the IRS believes there is a discrepancy between the income reported on your tax return and the information they have from other sources, such as your employer or financial institutions.

• Why you received it: The IRS found a mismatch in income or other information reported on your tax return.

• What to do: Review the notice carefully to verify whether the IRS’s information is correct. If it is, pay the amount owed or arrange a payment plan. If you believe there is an error, respond with supporting documentation to dispute the claim.

2. CP11: Changes to Your Return, Balance Due

The CP11 notice is sent when the IRS finds a miscalculation on your tax return that results in a balance due.

• Why you received it: The IRS corrected an error, and the change led to owing additional taxes.

• What to do: Review the notice, and if you agree, make payment arrangements. If you believe the IRS made a mistake, respond with supporting evidence to dispute the correction.

3. CP12: Refund Adjustment Notice

The CP12 notice is issued when the IRS corrects a mistake on your tax return that affects your refund. This notice often results in a smaller refund than initially expected.

• Why you received it: The IRS made corrections to your tax return, which affected your refund amount.

• What to do: Review the changes made by the IRS. If you agree with the correction, no further action is needed. If you disagree, contact the IRS or submit supporting documents to correct the error.

4. CP14: Balance Due Notice

The CP14 notice is sent when there is an unpaid balance on taxes. This is often the first reminder notice for unpaid taxes.

• Why you received it: The IRS believes you owe money for the tax year referenced in the notice.

• What to do: Pay the amount due by the specified deadline to avoid interest and penalties. If you’re unable to pay the full amount, consider setting up an installment plan with the IRS.

5. CP501/CP503: Reminder of Unpaid Taxes

If you receive a CP501 or CP503, the IRS is sending you a second or third notice about an unpaid tax balance. It serves as a reminder after the initial CP14 notice.

                • Why you received it: The IRS still hasn’t received payment for your unpaid taxes.

• What to do: Pay the balance immediately or contact the IRS to make payment arrangements. If you’ve already made the payment, confirm that it has been processed by reviewing your IRS account online.

6. CP90: Final Notice of Intent to Levy

The CP90 notice is serious and informs you that the IRS intends to seize your assets if the balance due is not paid. This could involve garnishing wages or levying bank accounts.

• Why you received it: The IRS has made several attempts to collect a tax balance, and this is the final step before taking collection actions.

• What to do: Immediately pay the balance or contact the IRS to discuss payment options. You can also appeal the proposed levy by filing a Request for a Collection Due Process (Form 12153) within 30 days of receiving the notice.

7. CP2501: Income Discrepancy Notice

Similar to the CP2000, the CP2501 notice is issued when the IRS finds discrepancies between the income you reported and the information they have on file. However, the CP2501 doesn’t propose a specific amount of tax owed; it’s a request for clarification.

• Why you received it: The IRS noticed a discrepancy in your reported income but needs more information before calculating additional tax.

• What to do: Review the notice, gather relevant documentation, and respond to the IRS to clarify the situation. Be sure to meet the deadline provided to avoid further notices.

8. Letter 226J: Employer Shared Responsibility Payment (ESRP)

Businesses subject to the Affordable Care Act (ACA) provisions may receive a Letter 226J if the IRS believes the company failed to offer adequate health coverage to employees.

• Why you received it: The IRS believes your company owes an ESRP for not meeting ACA requirements.

• What to do: Review the letter carefully, consult with your tax advisor, and respond by the deadline. If you disagree with the ESRP amount, you can file a formal dispute with documentation.

Key Steps to Take When You Receive an IRS Notice

1. Read the Notice Carefully

IRS notices contain specific details about the issue and what actions are required. Don’t ignore them—failure to respond in a timely manner can result in penalties or enforcement actions.

2. Verify the Information

Cross-check the notice with your tax records. In many cases, IRS notices are the result of simple errors or missing information, which can often be resolved with proper documentation.

3. Respond Promptly

Pay attention to any deadlines mentioned in the notice. Whether you’re making a payment or disputing a claim, timely action can prevent further complications or additional penalties.

4. Contact a Tax Professional

Some notices may be complex or difficult to understand. If you’re unsure of how to proceed, it’s wise to seek assistance from a tax professional who can help you navigate the situation and communicate with the IRS on your behalf.

Conclusion

While receiving an IRS notice can be alarming, most can be resolved quickly with the right information and prompt action. Understanding the nature of these notices and knowing how to respond will help you avoid potential penalties and minimize stress. If you’ve received an IRS notice and need guidance, we are here to assist you with professional support and expertise.