Getting a letter in the mail from the IRS is not necessarily reason to panic. In fact, you most likely have very few reasons to fear what the letter communicates if you take the proper steps to resolve any issue the IRS has with your returns. If you think to ignore the letter entirely, you should be aware that disregarding it could result in serious legal and financial consequences.
Reasons for Audits
The IRS will send you a letter in the mail if it wants to audit any of your prior years' tax returns. You should not panic if you are notified about an audit.
An audit simply allows the IRS to review your tax returns and does not necessarily mean that you owe the government any back taxes. An audit can also reveal:
- Overpayments and any refunds that the IRS owes you
- Information that was input incorrectly into your returns, like a mistyped Social
- Security number
- Inconsistent information on a W-2 or 1099
- Mathematical or accounting errors
This second letter typically will include a scheduled audit appointment that you must attend in person. If you fail to show up to your audit appointment, you could face being arrested and having your assets seized by the IRS.
Other Reasons for an IRS Letter
Along with its intent to audit you, the IRS will also send you a letter for other reasons as well. Some of the more common reasons that it notifies you by mail include:- Owing money for past due balances
- Unclaimed refunds to which you are entitled
- Notice of default on a payment agreement
- Intent to levy assets like your wages and bank accounts
If, for example, the letter indicates that you owe a past due balance, you can either agree with the amount, pay it in full, or set up a payment arrangement. If you do not agree with the amount stated, however, you can contest it by contacting the IRS and submitting the proper paperwork. You may also need to submit proof of your finances like:
- 1099s or W-2s
- Prior tax returns
- Bank statements
- Statements of dividends or other earnings
When you are notified about any balance that you owe the IRS, it is important that you resolve it as quickly as possible rather than ignoring it. Ignoring the letter and the IRS' intent to collect on the debt will not make the issue go away. If anything, your disregard for the matter invites the IRS to:
- Garnish your wages or salary
- Substitute the disputed return, which could result in you owing more money
- Send a tax officer to visit you at home
- Seize your assets like investments or savings accounts
- File criminal charges against you
The IRS is more than willing to work and negotiate with taxpayers who have unsettled accounts or owe past due balances. The first step to starting this negotiation process requires that you respond to all letters sent by the IRS.
Rather than panic when you get an IRS letter in the mail, you should take the proper steps to communicate about your tax issue. Ignoring IRS letters could result in serious financial and legal consequences.
