The relief of filing your tax return can be short lived if a tax notice is received. Technology and additional filing requirements have increased the amount of data the IRS and your home state has to compare to your tax filing. Although your tax filing may not be wrong, it may not match up to how the IRS has posted the W-2’s, 1099’s, and other data it has received from your employer, contractors, lenders, or advisors.

Below are several tips on how to deal with the dreaded tax notice:

1. First Step – Call YHB

…and share a copy of the notice with us. If there is a section in the notice to designate an authorized representative, please sign before delivering to us. (We may still need a formal Power of Attorney, Form 2848, but this signature will usually help us to get the process started.)

2. Don’t panic and do not ignore it!

Let us boil down the issues identified in the notice, and determine the cause. We will help you address the issues and find the resolution.

3. Is it real?

In this day and age, we are always questioning the authenticity of requests for personal information. Here are some helpful hints:

• The IRS or any taxing authority will always contact you in writing first. Do not answer any questions over the phone unless you have previously been assigned a direct representative.

• If you question the authenticity, DO NOT use the contact information provided in the letter. Call the taxing authority directly using a contact number found on their website.

• Share the notice immediately with YHB, or your tax preparer.

4. I don’t have enough time to respond!!

Normally, the IRS or state tax department will grant an extension of time to respond. They may place a hold on the account to prevent additional notices from being issued until you can file your response. CAUTION: Interest and penalties continue to accrue on any balance due, so it is important to resolve the matter as quickly as possible.

5. They are questioning my tax payments… what’s up with that?

This happens frequently. Perhaps the IRS did not carryforward an overpayment, or they did not post a quarterly estimate to your account. Sometimes these items are mis-posted in their system. Today, electronic payments are, in general, matched and posted more accurately. But, payments made by check are sometimes in “limbo-land”. We can often handle this with a phone call, but will need copies of the cancelled checks. So, if you can pull these from your bank records for us to have on hand, it is quite helpful.

6. Desk reviews – YUCK!

Fair warning – these are extremely time consuming and can be an investment of your time and your accountant’s time, which can be costly. This is usually a random selection, but they want “EVERYTHING BUT THE KITCHEN SINK” to support your income and deductions. So:

• Be sure you retain your supporting documents, like receipts, cancelled checks and bank statements, to “prove” your deductions. The IRS will often ask for all three items! (We recommend keeping your supporting documentation for 7 years from the date of filing, and you should retain your actual tax return permanently.)

• They will ask for copies of everything to be sent to them, not originals.

• Business and charitable miles: Be sure you are keeping a “contemporaneous log” and documentation of your travel for these purposes. Include where and why you met, and if it is business meeting, who you met with. (A calendar will work, but be sure to include this information.)

• Charitable Contributions:
  • Receipts, receipts, receipts!!! Do not throw them away.  Receipts must be received from the charitable organization BEFORE you file your income tax return.
  • They will also ask for the canceled check or credit card payment.
  • Non-cash: They will ask for your list of items donated, and the value assigned to each.
  • Non-cash over $5,000: They will want to see a copy of the qualified appraisal.

• REDACT: Don’t share anything extra! Only give them what they ask for. If we give them a bank statement, we oftentimes will redact unnecessary information.

• Let us help. There are many items they may request, and we stand ready to help.

7. Cost-versus-benefit

Unfortunately, even when you know your right, it is not always worth the aggravation and cost. Therefore, you may decide it is not worth the hassle and just pay a small assessment. Please be sure to still share a copy with your tax preparer because the notice may impact carryovers or contain other changes that may be more important than they seem on the surface.   (Also note:  If an IRS adjustment is made, they share this information with your state of residency.  Therefore, you may also need to amend your state income tax return, or expect a notice from them.)

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There are many reasons you may receive a tax notice, which may not be covered above. But, there are two main take-aways from this post:

1. Don’t panic and
2. Call YHB. We stand ready to help.

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READY TO TALK TO AN EXPERT? CONTACT OUR FAMILY LEGACY SERVICES TEAM.

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