A Letter From the IRS? Uh-Oh. But Don't Panic!
NEW YORK ( TheStreet) -- You filed your 2011 federal and state income tax returns on time and received, and probably already spent, your refunds. Then yesterday you got a notice in the mail from the IRS, or your state tax agency, telling you there was an error on the return and you owe additional tax, penalty and interest!
In 2011, the IRS received over 1.8 billion 1099s, 1098s, W-2s, and other such returns reporting income and deductions for tax year 2010. The information on these returns was matched against 141 million 2010 individual income tax returns. The Service found almost 20 million "alleged" discrepancies and issued a CP-2000 notice to 4.7 million taxpayers explaining what they thought was wrong and asking for payment of additional tax.
There are 2 basic rules when you receive correspondence from the IRS or a state tax authority:
On the other hand...
If you get a notice in the mail carefully check the return that is being questioned. If it was prepared by a tax professional send a copy of the notice to your preparer immediately. If you prepared the return yourself, and you do not understand the notice, you should consult a tax professional.
So far this year I have received quite a few IRS and state notices from clients requesting additional tax on 2011 returns. In almost all instances a letter from me, with photocopies of appropriate documentation, resulted in the IRS or state agency agreeing that the return was correct as originally filed and that no additional tax was due.
In recent years I have seen IRS and state notices where:
In some cases, the taxpayer or preparer made a clerical error or omission on the original return, but it is more likely that the notice was issued because there was some problem in the IRS or state processing software.