A taxing authority such as the IRS or State will issue a written notice under various scenarios, some of which are discussed below. (Note that the initial contact is always by mail; if you receive a phone call purportedly from the IRS or other tax authority, it is fraudulent, and you should hang up without revealing any personal information.)

The notice will set forth the reasons for its issuance and, if applicable, the additional tax it asserts is due, often adding interest and penalties to the assessment. The notice typically also sets forth a due date for response from the taxpayer. They may also give a telephone number, but in our experience it’s preferable to respond to most notices in writing, both because of the written record it produces and to avoid long hold times.

An initial step in analyzing a tax notice is to determine its nature. Many propose an adjustment to tax, often an increase, but sometimes a decrease. The most common reason for adjusting tax upward is understatement of income. For example, the IRS may say it received information from a broker or other payor reporting income, which it believes the taxpayer did not pick up on the tax return.

Another frequent occurrence is a mismatch between tax payments on record with the taxing authority and payments reported on the tax return. While this will not change the tax computation, it will affect the refund or payment due. In these cases it’s usually a straightforward analysis as to whether or not the IRS is factually correct. Sometimes they are, sometimes not.

If they are correct, the matter is resolved by paying any amount due. But if the notice is erroneous, the most successful approach to challenging it is to write and submit a clear and succinct response explaining why you are contesting the notice and including supporting documentation backing up our position. That approach frequently succeeds in abating the assessed tax after a single letter. Occasionally the matter is prolonged and results in multiple communications.

Other notices require a more comprehensive approach. For example, the notice may question the manner in which an item was (or was not) reported, and the response may require discussion of the tax code or regulations or other authority. Again, clarity of response is crucial. If the IRS representative doesn’t understand the position set forth in the response, they are unlikely to change their original assessment.

In any event, if you receive a tax notice it is important that you should not disregard it, whatever the nature of the notice may be. You should not panic. If a taxpayer disregards the initial notice and there’s additional tax due, further notices will be issued. As time elapses the notices get more severe in nature, and will eventually result in a notice of lien or an intent to levy. Taxpayers do not want to find themselves in a lien or levy situation, and the best way to avoid those is to promptly address the initial notice.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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