The Audit Process:

Tips for Handling the IRS Notice

Every year the IRS sends out millions of notices to taxpayers. That means you have a 35% chance of receiving one! If you have ever been the unlucky recipient of one of these notices, then you know just how indecipherable and intimidating they can be. Even the current IRS Commissioner, Charles Rossotti, admitted that the IRS is still sending over 100 million notices a year to taxpayers that often only a tax lawyer could decipher or love. The source of the IRS notices is an IRS computer that automatically generates a notice whenever it picks up an inaccuracy. Although this system is very beneficial to the IRS (it brings in billions more in tax dollars!), it is responsible for the unclear, and sometimes incorrect, notices that we, the taxpayers, receive.

The initial notice you receive is to notify you that there is a balance due, a mathematical error has been located or an adjustment has been made to your account. It is usually one of the following:

  • CP-2501 (an income verification notice)
  • CP-2000 We're Proposing Changes to Your Return
  • CP-13 We Changed Your Account
  • A 30-day letter of notification of the results of an audit

Respond! If you choose not to, you can expect to receive a Statutory Notice of Deficiency. A Statutory Notice is issued by the IRS when they believe that the amount you stated you owed on your income tax is less than the actual taxes owed. Also known as the 90-day letter, the IRS cannot legally enforce the collection of additional taxes owed until this notice is sent. At the end of the 90-day period, the IRS may initiate collection of taxes unless a petition has been filed with the US Tax Court in Washington, D.C.

The second notice, Form 501 Reminder Notice – Balance Due, is followed by the third and final notice sent via certified mail, CP-504 Urgent Notice - Balance Due, We Intend to Levy. This final notice cites that if payment is not received within 30 days, the IRS can start collection actions against you by garnishing your wages or seizing your property. One course of action available to you upon receipt of a notice of intent to levy is to request an appeal. Within 30 days of receiving the notice, you must file Form 12153 Request for Collection Due Hearing with the IRS Office of Appeals. Once an appeal is filed, the IRS must stop all collection actions against you for the duration of the appeal and trial. However, if you did receive a Statutory Notice of Deficiency, ignored prior IRS notices and chose not to dispute them, don't expect to be allowed to challenge the amount of tax due at this hearing. The IRS frowns on stalling, so always respond, the quicker the better, to any notices you receive!