IRS Letters

Understanding IRS Letters

This tax relief site will give you better information about how to respond. Each letter can be found on the IRS web site. Just Google the letter or form number and select the sites you want explanations from, including the link to the IRS web site.
Please read my descriptions for each letter. Even if you didn’t get that letter, the descriptions contain a sample of the useful information these letters contain. It should help you understand the IRS letters better.

Great Tax Reduction Technique

What if you get a letter from the IRS charging you additional tax based on a math error or a clerical error? How would you like to avoid paying it? Here’s how… write back within 60 days and say you request an abatement under section 6213(b)(2). This may get it abated. It’s worth a try. Sometimes they reassess it, but they must issue a “letter of deficiency” giving you appeal rights. Include in the letter a statement that you disagree with the additional tax and the action you want taken, such as “I disagree with the additional tax assessment because I did everything correctly and I want you to remove the taxes.” Also state that if they don’t remove the taxes, you are requesting that they issue a letter of deficiency so you can file an appeal. The letter of deficiency will list the changes that they made. (Often you get a correction letter that doesn’t spell out why they made the changes in the first place.) Use this approach for letters involving a missing SS# (supply the number and copy of Social Security card if you have it, in your letter). Send your letter to the address they request you respond to. Never be afraid to call or write for an explanation of the letter or the adjustments being made. You may just want to pay it, or if you are contesting it, you have a better understanding of what you are contesting. If you do call for an explanation, do not give any information as to what and why you did anything! They will record it and it can be used to deny your request for abatement.

CP 14 – Request For Tax Payment

This is your first bill for taxes due. A nice simple request for payment. The IRS feels that you still did not pay enough to cover the liability plus interest and penalties. This letter will contain details concerning the interest and penalties added, and often less about why you owe money.

CP 22E

This is a change based on the result of an IRS audit examination. You don’t even have to be aware of it! The IRS can and does conduct audits without your knowledge. If they think everything is O.K. then you probably will never know it happened. If not you will get a letter. You should respond with your proof for any items you want to claim are justified as staying the way you reported them. Or you can just agree to their changes. Often the reasons for the change are missing. How nice. Pull your third party payer information and see why they have different information than you. If you can’t get it in time, call and find out why. You may have to make a few calls. Hang in there.

CP 71A or CP 71D – Reminder Of Balance Due

Your annual letter of what is still owed. This letter will also inform you of your “currently not collectable” status. How nice of them!

CP 101 – Math Errors

This form consists of math errors they say you made computational errors, tax deposit errors, or no reply to additional information, etc. If they are wrong, correct them. If they are right, just ignore the letter.

CP 161 – Underpaid Tax

This shows the underpaid tax according to the IRS records. Pull your ROA and verify your payments and filing of returns. You will see how the IRS came up with the balance. If you owe it, pay it. Use www.eftps.gov if you are set up. Call the IRS office on the letter to resolve it. If you need to do an installment agreement or offer in compromise consult this manual.

CP 518 – Your Tax Return Is Overdue

Well now you know. Get it prepared and sent in. If you owe more than you can pay, then prepare to deal with the collection division. Luckily you can be prepared because of this manual.

CP 522 – Two Year Review For More Financial Statement Information

Be careful responding. If your income has gone up, your monthly payments to the IRS will probably go up too. Maybe your living expenses, especially medical, have increased too! You need to maximize deductions to offset any increase in income. If you need to lower your monthly payments, argue that too.

CP 525 – 30 Day Letter To Appeal

This comes with your audit adjustment letter. It gives you 30 days to appeal if you disagree with the adjustments. It’s a good idea to prepare this appeal along with your continued arguments and give it to the auditor. This way you protect your rights if you and the auditor disagree about the changes.

CP 566 – Initial Contact Letter On An Audit

Be glad you received it. Many audits take place without taxpayer notification. At least you get a chance up front to defend your positions. Make sure you prepare properly.

Form 668W – Wage Levy

Fill out the exemption portion so you can get the biggest paycheck. This is a very serious collection action. If you want your next full check, you need to take care of delinquent filings and information the IRS needs from you to determine a payback plan right away. Get your information together and ” paint a defensible picture” of your financial situation as instructed in this manual. I strongly suggest you to file any delinquent returns, and start making any current payments of estimated taxes that are delinquent (or prove that you are not required to make one by providing your estimated tax calculation). Provide this calculation anyway if your payment is less than it normally should be. Then call for an immediate levy release. Provide them contact information regarding the person in your company whose job it is to receive wage levy releases. The IRS can levy your social security or your retirement.

Form 668A – Levy

Same as above, except this is a one time bank or financial institution levy. It works on anyone who is holding your money. The funds are on hold for 21 days, then they are sent to the IRS collection person who sent out the levy. I have seen banks not follow the rules on the one time nature of this levy. On the back of the levy it states that this is a one time, not continuous levy. It is for funds on hand the day it is received only. For instance, one of my clients who was working in real estate had to switch jobs because his employer got a 668A levy on his commissions. None were owed. The following week he had a closing, and would receive commissions. I tried to explain to his employer that the new commissions did not have to be held for the IRS and to read the back of the levy. It’s amazing how some people can be so afraid of the IRS that it clouds their common sense judgment.

Letter 692 – Request For Consideration Of Additional Findings

This comes with proposed adjustments to your tax return. It gives you courses of action. You can sign it, or request an appeal. Be careful, you usually have less than 15 days from your receipt of the letter, to take action.

Letter 1085 – This Is A 30 Day Letter To Protest An Assessment On A 6020b

This is a 30 day letter to protest an IRS tax assessment on a 6020B, which is the IRS code for a payroll report they filled out and filed for you. Don’t just accept their figures, even if they are close to the actual amounts. Your 941 payroll reports must balance to the 940, the state reports, W-2′s, etc. At a minimum, you must see that the total gross wages for the year is the same for each report. Hire a professional to help you if you can’t do this on your own.

Letter 1153 – Trust Fund Recovery Penalty

The remaining FICA and withholding not collected from the business is now being charged to you. This is a very serious situation. Different regions of the country rely on different court procedures in order to settle some disputes. In this case, you must prove that you didn’t have authority to direct the company’s funds and that you did not have knowledge of the taxes not being paid. You should send the R.O. your appeal along with your proof that you are not liable, just in case they don’t agree with you. It shows that you are very serious. Many people will wait on this part until it is absolutely necessary. Sometimes R.O.’s will chase everyone who has signature authority on the bank account, any stockholder, any signer of a tax form, or listed officer, and then leave it up to you to defend yourself.

Letter 1389 – 30 Days Protest On Tax Shelter

This gives you 30 days to protest changes made to your return because of your tax shelter activity. Sign it or appeal it.

Letter 3016 – Preliminary Determination Letter

You have the right to appeal within 30 days, if they denied your request for innocent spouse relief. Review and develop your arguments before calling for a new determination. If you can’t get the reviewer to change to your way of thinking, then file your appeal in a timely manner.

Letter 3174(P) – Letter Of Levy

Similar to letter 1058. Used when a taxpayer changes address. This needs immediate attention. You avoid levies by resolving the collection issues, or you appeal based on a hardship.

Letter 3173 – 3rd Party Contact

This letter advises taxpayers that the IRS may be contacting 3rd parties to ask questions. You can’t really do anything about it. Don’t worry though; your personal information will be kept confidential.

Letter 3391 – 30 Day Notification Letter

The IRS says you owe for the years stated. The letter shows you what the liability is based on. Agree to it or protest. However, if you never filed the return, then file it. Use their numbers for income and expense if you feel comfortable with them. If you just want to accept their information without filing a return, ask for a signature form so you can show you signed the return they prepared. They file an SFR (substitute for return) using the 3rd party payer information they have on file. This includes reports such as W-2 form, K-1 form, 1099 form, etc. filed under your tax ID number. The IRS will start the SOL on collections soon after the return was signed and entered in their system. Over the years, I have seen the IRS collecting tax liabilities for more than 10 years, because the taxpayer never started the the process of the collection statute. The statute starts when the taxpayer files a return that the IRS accepts.

Considering Writing Your Own Letter To The IRS?

If you follow my guide, you will rarely have to write a letter to the IRS, unless you are attempting to remove penalties. If you can’t get someone at the IRS to take care of your requests by a due date, or if you can’t confirm that your request was completed, you may want to send something in writing, certified return receipt, prior to the due date, therefore complying with a statute date that you don’t want to expire.

When in doubt, do a mailing to lock in the due date. Never, however, expect it to be read and acted upon in place of your phone calls! I can tell you to wait 3-6 weeks, but each case will determine the follow up time for each mailing. Other factors will too. For example, how much risk you are willing to take that your paycheck or bank account will be levied?

If you need anymore information about IRS letters and notices, or want to speak to a licensed professional about your issue, contact us today!

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