Letters from the IRS or similar state and local agencies rarely have a friendly tone. They're frequently thick documents that utilize obscure language to make you feel defenseless. One of the scariest versions of these types of letters are notices of proposed adjustments. They look like bills, and they're 100% official. What are you supposed to do about them?
Give the Proposal a Good Read
You're probably not going to fully understand what the government is even upset about on your first read. The big items you want to try to take away from your initial read are the amount of the proposed adjustment, the date that a response is expected, and where you should send your response.
If possible, you'll want to try to ascertain why the government is proposing an adjustment. Some adjustments are perfectly valid, and you may end up paying them. Others can be caused by accounting errors from a variety of parties.
Learn Why You Are Receiving This Letter
Virtually all proposed adjustments are the product of mismatches between a taxpayer's return and the data the federal government has. For example, PayPal payments often trigger these letters. If you didn't report the payments and they're legit, then you're probably on the hook for the bill. Sometimes false duplicates end up being flagged, though, and an automated system can kick out a letter for no reason.
Respond in a Timely Manner
There is a response date required for each inquiry, and the response date is usually one month from the issuance of the letter. If you completely agree with the proposed changes, you can skip the response letter and either send a check to cover the new bill or set up a payment agreement.
Should you disagree, the first step is to submit a formal response. You may be apprehensive because there is a tight deadline. It's not a bad idea to talk with a tax attorney, and many offer free consultations. If you're not confident in assembling a response letter, a lawyer can help.
Review your tax returns for that year before writing your response letter. If you have clear evidence that contradicts the proposed change, such as numbers that perfectly match and show a duplication error, include copies of documents proving that. Be business-like in your wording and make sure that you send your response letter via post with a receipt confirmation included.
For more information, contact a tax attorney near you.
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