4 scary letters you might get from the IRS – and why they’re not as bad as they look

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Not all letters from the IRS contain bad news. In fact, it’s usually pretty ordinary.


Key points

  • The IRS frequently sends a letter to clarify a simple issue.
  • If the facts in a letter are wrong, there is a system in place to disagree and appeal.

It’s no wonder some people panic when they receive a letter from the IRS. After all, we’ve all heard horror stories of how the IRS has upended lives in an effort to raise money. Here’s a not-so-well-known secret: The IRS isn’t the bad guy. In fact, as long as you show a good faith effort, it’s relatively easy to work with the IRS. We’ll get into that a bit more in a moment. First, let’s look at four letters you might receive and the best moves to make once you have one in hand.

Read more: 4 ways to save money on your 2021 taxes

1. You have a balance owing

When you consider the number of mathematical calculations included in a single tax return, you realize how easy it would be for you, your representative, or the IRS to get one (or more) of the calculations wrong. It happens. And usually, when the error is yours, it doesn’t make a big difference to your performance.

The reason for receiving such a letter is that the IRS includes a page identifying the alleged error and showing their calculations. Check it out. If it’s clear the IRS is right, you may owe more money. If it is an error on his part, you can go through a simple appeal procedure.

The appeal process brings us to an excellent point. The IRS does not show up at your door, demanding payment. It doesn’t call to tell you there’s a problem or send a message via email or text. The IRS doesn’t even insist that it’s true and you’re wrong. He sends a letter through the US Postal Service, exposing a potential problem to your attention. If you disagree with the assessment, you have the right to file a written protest. A question should never become contradictory. If you think the IRS is wrong, explain why.

On the other hand, pay the amount owed if you were wrong and the IRS is correct. If you can’t afford to pay it all at once, the IRS allows installment payments.

2. Your refund amount has changed

The same rules apply if you get a letter saying your last refund amount was wrong and you need to refund some of the money. The IRS will indicate where it thinks an error was made, and you will be given the option to agree or disagree.

However, not all letters from the IRS contain bad news. You may receive a letter stating that the IRS owes you more money, along with a check for the amount owed. It’s never a bad day when you find yourself with a little more money in your bank account.

3. We’re not sure you’re who you say you are

Scams of all kinds are on the rise, including tax scams. Let’s say someone else got ahead of you by filing a tax return in your name and using your social security number. The IRS may send a 5071C letter asking you to verify your identity. You will be asked to call a phone number provided by the IRS or verify your identity through the agency’s Identity Verification service.

To note: The IRS will never contact you by phone or email for identity verification. You may end up calling the IRS at some point, but they will never contact you. If you receive a message via social networks, it is also a scam.

Read more: Filing taxes for the first time? 5 things to know

4. You failed to file

One of the most frustrating letters you can receive from the IRS is telling you that you didn’t pay your taxes last year (or the year before). If you receive such a letter, do not panic. The IRS is currently buried under a mountain of correspondence that has accumulated over the past two years. Between being responsible for multiple rounds of stimulus checks and a workforce reduced by COVID-19, the mail has piled up, and frankly, it’s unclear who paid their taxes.

The result of this huge backlog? Many taxpayers received letters saying their taxes were never paid. If you’re the recipient of the letter, there’s no need to sweat. So many incorrect letters were sent that the IRS announced it was temporarily suspending the issuance of more automated notices.

As with the other letters, take your time reading it. If the information in the letter is incorrect, provide a written response. The letter should tell you where to send your response. You may want to avoid calling the IRS as the agency is currently overwhelmed with phone calls.

If your blood pressure naturally spikes at the thought of dealing with the IRS, it may help to know that the agency is used to dealing with tricky issues. Chances are he’s been through your situation hundreds of times and can help guide you through the process of making things right.

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