Legacy Law Blog

For many taxpayers, their first interaction with the IRS is when a notice shows up in their mailbox. While the envelope can appear unassuming, the notice inside is often scary and confusing to a taxpayer who has never received one.

When an IRS envelope arrives, the first question is often: “How much do we owe?”

The better first question is: “What is the IRS asking us to do?”

An IRS notice may propose a change, request records, report an unpaid balance or signal collection action. Some notices also contain a deadline to challenge the IRS’ position. It is also very common that a taxpayer might receive several notices at the same time covering multiple tax years and/or tax issues.

Treating every notice as a bill can lead a taxpayer to pay before evaluating whether the tax assessment is correct. Treating every notice as routine correspondence can put important rights at risk. The IRS’ own guidance emphasizes reviewing the notice carefully and taking any required action by the stated deadline.

The right approach is to triage the notice by identifying the issue raised by the IRS, identifying any deadlines in the notice and what must be done to respond before the deadline elapses, and designating a specific person to manage the notice-response process before deciding how to respond.

Identify What Kind of Notice You Received

The notice or letter number, usually printed in the top or bottom right corner of the notice, is a useful starting point, but read the entire document, including the response instructions and any explanation of appeal rights. The IRS uses very specific notices and letters to communicate with taxpayers. Identifying which type of notice or letter you received will go a long way toward identifying what response the IRS expects to resolve the underlying tax issue.

Before acting on any notice, confirm that it is genuine. The IRS generally first contacts taxpayers by mail, not by email, text message or social media, and it will not demand immediate payment by gift card, wire transfer or cryptocurrency. If you are unsure whether a notice is real, look up the notice number on IRS.gov or log into your IRS online account rather than calling a phone number listed in a suspicious message.

The following categories outline the types of notices and letters the IRS typically sends to taxpayers.

The IRS’ Position is not Necessarily the Final Answer

A proposed adjustment notice indicates that the IRS believes something on a return should be corrected. It does not necessarily mean the proposed amount is accurate or that the notice is a bill. For example, the IRS expressly describes a CP2000 notice as a proposal to adjust income, payments, credits or deductions. The CP2000 is not a bill but is instead an opportunity for a taxpayer to review a proposed change from the IRS and respond to it.

When a taxpayer receives a proposed change notice, the first step is to compare the proposed changes with the filed return and supporting records. Determine whether you agree, disagree or agree only in part with the changes proposed by the IRS. A useful response to this type of notice explains the discrepancy identified and supplies documents supporting the taxpayer’s position. Simply stating that the IRS’ proposed adjustment is wrong is not a substitute for addressing its explanation. Follow the procedures outlined on the notice when responding rather than assuming an amended return is required.

Balance-due Notices

A balance-due notice describes an amount the IRS believes remains unpaid for a specific tax period. By the time this notice is sent, the IRS has generally already recorded (or “assessed”) the tax on its books, and the IRS’ 10-year period to collect the balance generally runs from that assessment date, not from the date of the notice.

Interest and, in many cases, penalties continue to grow until the balance is paid. When this type of notice is received, a taxpayer should begin an account reconciliation for the tax period to determine if the balance is correct. Automatically assuming the balance is correct and paying it immediately may lead to payments that are inaccurate.

Compare the notice with the return, payment confirmations and relevant account records. If the assessed balance is correct, consider payment or initiate a payment arrangement. If you disagree with the balance assessed, follow the notice’s instructions for addressing the discrepancy and have supporting records ready to demonstrate that the assessment is incorrect.

Information Requests

An IRS letter may request records supporting income, deductions or credits. This type of notice or letter is often a precursor to a proposed change or a balance-due notice. When the IRS sends out these types of correspondence, it typically identifies the items under review and the documents it wants to see to complete its review.

To respond to these kinds of notices, organize the response around the actual request outlined in the notice. Provide clear explanations and copies of supporting records, keeping the originals. When responding, avoid the trap of providing more information or documentation than what the IRS is requesting. Doing so can create additional inquiries from the IRS and may lead to more notices and assessments. Retaining a qualified tax practitioner is often a great idea for this type of notice because the practitioner is better equipped to evaluate the request along with the documents needed to fully respond without opening additional lines of inquiry.

If additional time is needed to respond to the notice, promptly determine whether an extension is available and follow the instructions on the notice to request additional time. Do not assume that the IRS will grant an extension by default. Failing to respond can cause the IRS to complete the examination and issue proposed adjustments without the taxpayer’s supporting information.

Collection Notices

A collection notice requires a different analysis from a proposed adjustment or assessment. The question is no longer just whether the tax calculation is right. The additional question is whether the IRS is preparing to pursue enforced collection and what procedures remain available to address the balance.

Not every collection-related notice carries the same consequences. A notice that a federal tax lien (a legal claim against your property) has been filed, and a final notice of intent to levy (a seizure of property such as bank accounts or wages), generally give the taxpayer the right to request a Collection Due Process (CDP) hearing.

In a CDP hearing, the IRS Independent Office of Appeals, which is separate from the collection employees handling the account, reviews the collection action and can consider alternatives such as a payment plan. A timely CDP request generally restricts levy action while the proceeding is pending, but it does not automatically erase the liability or remove a filed lien.

When this type of notice is received, it is important to read the exact notice before deciding whether the appropriate response is payment, a collection alternative, a hearing request or another challenge.

Separate Response Deadline from Legal Deadline

Some notices carry very specific deadlines. These deadlines are not arbitrary and, in some cases, missing one can permanently cost you important rights. The date to respond to the IRS listed in a notice is not always the same as the legal deadline to protect your rights, which may require a filing with a court or a specific IRS office rather than a phone call or letter to the IRS.

Notices Deserving Immediate Attention

A statutory notice of deficiency (sometimes called a “90-day letter”) generally provides 90 days from the date of mailing to file a petition with the U.S. Tax Court, or 150 days when the notice is addressed to a person outside the United States.

The notice shows the last day to file. Continuing to exchange documents or talk with the IRS does not extend this deadline, and the IRS cannot extend it. Missing the deadline generally means losing the right to challenge the tax in tax court before paying it. The taxpayer may then have to pay the tax first and seek a refund.

A qualifying Collection Due Process notice generally carries a 30-day hearing-request window. The calculation differs for lien and levy notices, so the taxpayer should verify the applicable deadline stated in the notice rather than count from the day someone opened the envelope. Missing this deadline means losing the right to a timely CDP hearing, including the protection against levy during the hearing and the right to ask the tax court to review the outcome. A more limited “equivalent hearing” may still be requested within one year, but it offers fewer protections.

A phone call to the IRS can provide additional information on either notice, but it is not a substitute for the required filing as outlined in the notice. A taxpayer should identify both what must be submitted to effectively respond to the notice and where the response must go before the deadline lapses.

Build a Simple Notice-Response Workflow

A business does not need a complicated system to address current or future notices from the IRS. It needs a reliable process that keeps an IRS notice from sitting unopened, circulating without an owner or reaching a tax practitioner too late.

A practical internal checklist is:

1. Open the notice letter as soon as it arrives. Scan every page and preserve the envelope. Record when it was received.
2. Confirm the taxpayer and tax period. Identify the legal entity, taxpayer identification number, return type and year or quarter involved. If possible, determine what the notice or letter is asking you to do based on the categories described earlier.
3. Calendar any deadlines immediately. Add an earlier internal review date so the response is not assembled at the last minute.
4. Assign one owner. Individual taxpayers should consider retaining a tax practitioner when necessary. Businesses should give one person within the organization the authority to correspond with the IRS as necessary to address the notice and to coordinate internal communication with accounting, management, the return preparer and legal counsel. If an outside practitioner will speak with the IRS on your behalf, they will generally need a signed power of attorney (IRS Form 2848).
5. Gather the relevant records. Start with the filed return, prior correspondence, payment confirmations and documents addressing the stated issue.
6. Identify the required action in the notice. Distinguish among providing information, disputing an adjustment, arranging payment, requesting a hearing and filing a court petition.
7. Preserve the response record. Keep the final submission, attachments and evidence of timely delivery.

This workflow turns the IRS’ general instructions (review the notice, follow its directions and act by the due date) into a manageable process that reduces the chance that something is missed when responding to the IRS.

Escalate Based on Risk, Not Just the Dollar Amount

A large, proposed adjustment warrants attention, but the amount alone should not control escalation. A notice involving a court filing deadline or collection-hearing rights may require prompt legal review before the business finishes reconciling every dollar. Those procedural opportunities depend on taking the right action within the applicable period.

For many taxpayers, the immediate objective should not be to personally resolve the tax issue as quickly as possible. It is to ensure that someone qualified reviews the notice, identifies the required response and protects the options available to effectively and completely address it.

The worst thing any taxpayer can do is ignore the notice. When a notice arrives, do not assume the IRS is correct and take steps to respond within any stated deadlines. When necessary, the best approach is often to engage a tax practitioner who can guide you through the response process. Taxpayers facing financial hardship or those who cannot resolve a problem through normal IRS channels may also contact the Taxpayer Advocate Service, an independent office within the IRS that helps at no cost.