Receiving a notice from the Internal Revenue Service (IRS) can be intimidating, but it’s not always a cause for panic. Each year, the IRS sends millions of letters to taxpayers for a variety of reasons—some routine, others more serious. Understanding the different types of IRS notices, what they mean, and how to respond properly is crucial for resolving tax issues efficiently and avoiding unnecessary penalties or interest.
1. Why the IRS Sends Notices
The IRS may send you a notice for many reasons, including but not limited to:
- Informing you about a change or adjustment to your return
- Requesting additional information or documentation
- Notifying you of a balance due
- Confirming a payment or refund
- Alerting you about identity verification or suspected fraud
- Informing you of potential underreported income (CP2000)
- Initiating an audit or collection activity
Each notice will include a unique letter or form number—such as CP12, CP2000, LT11, or 5071C—which determines the reason for the communication and what actions you need to take.
2. Understanding Common IRS Notices
CP12 – Overpayment/Refund Adjustment
This notice indicates the IRS made changes to your return that resulted in a refund being issued or adjusted. It may be due to math errors or other simple corrections.
CP14 – Balance Due
This is a basic notice that informs you of a tax balance you owe. It includes the amount due and a deadline for payment before interest and penalties begin to accrue.
CP2000 – Proposed Changes for Underreported Income
This notice results from the IRS matching income reported by third parties (like employers or banks) with what you reported on your return. It proposes adjustments if there’s a discrepancy.
5071C – Identity Verification
This letter is sent when the IRS suspects that someone may have filed a return using your name or Social Security Number fraudulently. It requires you to verify your identity online or by phone.
LT11 – Final Notice of Intent to Levy
This notice means the IRS intends to levy your assets if you do not take immediate action. It typically follows multiple prior notices and includes appeal rights.
Letter 525 – Audit Notification
This letter informs you that your return has been selected for examination. It outlines the specific issues under review and how to respond or provide documentation.
3. How to Read an IRS Notice
Every IRS notice follows a standard format and includes the following important information:
- Notice number: Usually in the upper right corner (e.g., CP12, CP2000)
- Tax year involved: Clearly states which year the notice refers to
- Explanation of the issue: Summarizes what triggered the notice
- Proposed changes or required actions: What the IRS believes and what you should do
- Response deadline: The timeframe by which you must reply to avoid penalties or further actions
- Contact information: Phone numbers and addresses for IRS assistance
Take time to carefully read and understand the notice. Don’t assume it’s an error or dismiss it as junk mail.
4. General Steps to Respond to an IRS Notice
Once you receive a notice, here’s how to respond effectively:
Step 1: Stay Calm and Read the Notice Thoroughly
Carefully read all pages to understand what the IRS is communicating. Do not ignore or delay action.
Step 2: Compare with Your Records
Pull your tax return, W-2s, 1099s, and any relevant financial records. Verify if the IRS’s claims or changes are accurate.
Step 3: Determine if You Agree or Disagree
- If you agree: Follow the instructions in the notice. Pay any amounts due by the specified date or sign and return requested documentation.
- If you disagree: Prepare a written explanation and include supporting documents. Mail your response to the address provided or call the listed number if instructed.
Step 4: Respond by the Deadline
Timely response is critical to preserve your rights and prevent additional penalties, interest, or enforcement actions.
Step 5: Keep Copies of Everything
Keep a complete copy of the notice, your response, supporting documents, and any proof of delivery (e.g., certified mail receipt).
5. When You Should Pay Immediately
If the notice includes a balance due and you agree with it, it’s best to pay immediately to stop further penalties and interest. You can pay online through the IRS’s Direct Pay system, by check, or through an electronic funds transfer.
If you can’t afford to pay the full amount, you may request a payment plan by submitting Form 9465 (Installment Agreement Request) or applying online.
6. What If You Ignore an IRS Notice?
Ignoring an IRS notice can escalate the situation. If you fail to respond:
- The IRS may assume you agree with their changes and adjust your return accordingly
- You may be charged additional penalties and interest
- The IRS may initiate collection actions like liens, levies, or wage garnishment
- You could lose your right to appeal or dispute the claim
Always respond in writing and within the time allowed, even if you’re seeking more time or clarity.
7. Responding to a CP2000 Notice
The CP2000 is one of the most commonly issued notices. It’s sent when the IRS believes you underreported income. It is not an audit but a proposed change.
Steps to respond:
- Compare the IRS’s data with your return and documents
- Use the response form included to indicate agreement or disagreement
- Provide documentation for any disputed items
- Mail the form and any attachments to the address listed on the notice
If you need more time, call the IRS to request an extension before the response deadline.
8. What to Do If You Receive an Identity Verification Notice
If you receive a 5071C notice, it means the IRS suspects someone else may be using your identity to file a return. This is a protective measure.
To verify your identity:
- Go to the IRS Identity Verification website (provided in the notice)
- Provide information from your prior-year tax return
- If online verification fails, call the IRS or schedule an in-person meeting
Once verified, your legitimate return will be processed, and any refund will be issued.
9. Your Right to Appeal an IRS Decision
Most notices include a right to appeal if you disagree with the IRS’s findings. To appeal:
- Submit a written protest explaining your position
- Include your name, Social Security Number, tax year involved, and the reasons for your disagreement
- Mail it to the address provided in the notice or follow IRS appeal procedures
You may also consider submitting Form 12203 (Request for Appeals Review) in some cases. Appealing can pause collection efforts until the issue is reviewed.
10. When to Get Professional Help
If your IRS notice is complex or involves large dollar amounts, you should consult a tax professional. A CPA, Enrolled Agent (EA), or tax attorney can help you:
- Interpret the notice and its implications
- Respond appropriately and effectively
- Prepare supporting documents or an appeal
- Negotiate with the IRS on your behalf
Professional assistance is especially helpful if you’re being audited, owe a significant balance, or face a possible levy or lien.
Conclusion
Receiving an IRS notice can be unsettling, but in many cases, the matter can be resolved quickly and painlessly if you understand what the notice means and respond appropriately. Most IRS letters are automated and routine, not punitive. The key is to read them carefully, act promptly, keep good records, and seek help when needed.
Whether it’s a correction to your return, a request for payment, or a verification step, dealing with IRS notices head-on can help you avoid further complications and stay in good standing with the tax authorities. Knowledge, preparation, and timely action are your best tools for resolving any tax correspondence.
