Here’s What to Do with an IRS Notice of Deficiency
July 30, 2018
What is an IRS Notice of Deficiency (CP3219A)?
Your taxes are filed, and you’ve finally kicked back in hopes for a compliant tax year. But what happens when things don’t line up with your taxes? An IRS Notice of Deficiency, or Notice CP3219A, means there is a discrepancy in your tax information. This IRS notice lets you know that the information you reported on your tax return is different than what third parties, such as your employer or financial institutions, have reported to the IRS. The IRS will make the change to the amount of tax you owe based on the third-party reports automatically.
Agree with the changes? Great!
If you agree with the changes made by the IRS and you have no additional income, credits or expenses that you need to report, you’re all set. You don’t need to amend your return. All you have to do is sign the notice using Form 5564, Notice of Deficiency – Waiver and send it to the IRS. If you have additional income, credits, or expenses, amend your tax return and file Form 1040-X.
What to do if you don’t agree with the Notice of Deficiency
If you disagree with the notice, contact the IRS over the phone or send a written explanation supporting your position. You can also contact the third party that reported the information in question (e.g. employer) and ask them to correct it. The IRS will let you know how long you have to contest the notice. Don’t have your return handy to compare? Request a copy of your tax return from the IRS by sending Form 4506.
Be aware that the IRS will charge penalty and interest on the taxes that remain to be paid if the liability has increased. Immediately address the changes, and if they’re correct, pay the balance to resolve your back taxes ASAP.
Can’t pay the tax liability?
You can apply for an IRS tax debt payment plan. After receiving the Notice of Deficiency, try to resolve the issue immediately. Penalties and interest are charged on unpaid taxes every month until the entire amount of tax debt is paid in full. In other words, you could be paying a lot of extra dollars for your tax liability.
You don’t have to go through foggy tax issues alone. Reach out to a tax professional if you’re unsure how to approach an IRS notice, or if you can’t pay your tax liability. Without addressing it early on, you’ll receive additional notices that will eventually end in IRS collective actions.
Tax Balance Due: 3 Steps to Address IRS Notice CP14
July 16, 2018
Unfortunately, filing your tax return isn’t always your only contact with the IRS for the year. If the federal tax agency finds errors on your return that lead to an assessment, they will send Notice CP14 for collection. This isn’t a time to freak out as long as you follow the appropriate steps to address the issue.
If applicable, you’ll receive your “balance due” notice within four weeks of your return being processed. This letter is the first contact from the IRS to collect overdue taxes. If you ignore or neglect to pay what’s owed, then the IRS sends additional notices and begin aggressive collection actions, like liens and levies. Here are three steps to take when you get your “balance due” notice:
1. Review the Notice CP14 Details
The first thing to do when receiving Notice CP14 is to know why you received it. The notice includes the following:
- The tax year for which taxes are due
- The notice issue date
- Your Social Security Number
- IRS phone number
- Tax amount owed
- Payments and credits
- Penalties charged on taxes owed
- The final amount due to be paid
- The deadline for paying the amount owed
The Notice CP14 also includes information on payment options, penalties, and interest.
2. Determine If the IRS Is Correct
Before agreeing or disagreeing with the Notice CP14, check to see if your return had errors that led to the assessment of taxes due. If you find errors, you will need to pay the amount owed before the payment deadline in order to avoid further penalties and interest.
If you don’t see any errors or you find a different amount than what the IRS determined, you can call the IRS on the phone number indicated on the Notice CP14. An IRS representative will assist you in resolving the issue.
3. Pay the Amount Due
You can make the payment indicated on the Notice CP14 using IRS Direct Pay, a service that allows you to electronically pay your taxes directly from your savings or checking account. Alternatively, you can pay by credit or debit card.
If you can’t pay the full tax owed, either send a request to the IRS to receive up to an additional 120 days to pay or set up an Installment Agreement payment plan. An Installment Agreement allows you to pay your tax bill in fixed monthly installments. Get help from a tax relief professional before requesting your Installment Agreement to ensure you get the best tax debt resolution for your situation.
Why Was My Refund Applied to Back Taxes?
May 27, 2018
Waiting for your refund check can make you feel as excited as a kid the day before your birthday. When you get that envelope from the IRS, you’re ready to tear it open and reveal your hard-earned money. But what does it mean when, instead of your refund check, you get a notice informing you that the IRS applied your refund to unpaid taxes? This happens when the IRS finds that you owe back taxes. They automatically use your refund amount to satisfy the full amount or a part of your tax debt.
What is this notice?
The IRS sends Notice CP49 to inform you about how much tax you overpaid over the last year (i.e., the amount of your refund) and how much of it the IRS used to fulfill your tax debt.
The Notice CP49 means that you have a tax debt or there are other federal taxes that have remained unpaid. If your refund money covered for the entire tax debt, then you don’t need to take further action. If your refund money didn’t satisfy your entire tax debt, then you can either pay the remaining balance in a lump sum or qualify for a payment plan.
Why was my refund applied to back taxes?
Many times, the IRS discovers that a taxpayer is under tax debt after they review their information and make changes to the tax return. In such cases of underpayment of taxes or owing of other tax debts, if the taxpayer has a refund, the IRS will apply the refund to the tax debt.
Simply put, if the IRS discovers that you have any unpaid federal taxes, they will satisfy the maximum amount of debt using your tax refund.
What if my refund didn’t cover the full amount of my tax debt?
Do you still owe federal taxes after the IRS used your refund? And can you not pay the balance in a single payment? Then you can use an Installment Agreement to pay the remaining tax debt in monthly installments. If your financial condition does not allow you to pay the balance, then you can consider applying for tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement.
Already making payments to the IRS under a payment plan? Great! You should continue to do so. The IRS will apply your refunds to your tax debt until your entire tax debt is paid off.
What if I do not have tax debt?
If you don’t have a tax debt, then you should immediately contact the IRS to correct their mistake. Your CP49 notice should have a toll-free number in the top right corner that you should use to call the IRS. Make sure you have your paperwork – including any canceled checks and amended returns – ready when you call.
Did you file jointly with your spouse? It’s also possible that the IRS applied your refund to your spouse’s tax debt. If so, you have options to claim your share of the refund.
Was your refund applied to back taxes? Don’t fret! Give us a call and we can help you figure out the best way to resolve your tax debt problem.
IRS Letter 5071C: Preventing Identity Loss One Verification at a Time
March 24, 2018
What if someone tries to submit a tax return in your name? Identity thieves often steal personal information from taxpayers in order to file fraudulent tax returns and pocket their refunds. But wait! Does the IRS do anything to keep these identity thieves from making off with your hard-earned refund? You can rest assured that the IRS has processes in place for identity theft. They use their handy Letter 5071C to obtain information from taxpayers to verify their identities. This additional information is meant to help the IRS prevent fraudulent tax returns from sneaking through their system.
What does Letter 5071C say?
Letter 5071C informs you that the IRS has received a tax return with your name and/or social security number. It also lets you know that they need to verify the identity of the recipient of the notice.
How do I respond to Letter 5071C?
You have two options to respond:
- You can verify your identity using the IRS Identity Verification Service
- Alternatively, you can call the IRS on the toll-free Identity Verification number in the upper corner of your letter
When using either of these two contact methods, you should have a copy of your last filed tax return and your current year’s tax return, along with other documents that verify your identity. Until your identity is verified, the IRS will not complete the processing of your return.
If you filed the return and there was no identity theft, the IRS should process the return in approximately six weeks. If you did not file the return, then you must contact the IRS immediately using either of the two methods shared above.
Will the IRS contact me outside of Letter 5071C to verify my identity?
The IRS will not ask you to confirm your identity via email or phone. Fraudsters use a number of tactics to deceive taxpayers, including sending out fake emails, letters or making phone calls. You should only respond to Letter 5017C to verify your identity and only use the two methods given above to provide information to the IRS.
Tools like our TaxSafe™ plan can also help ensure that your identity is protected no matter what.