This typically means the IRS wants information from you or you owe money. White envelopes are never good.
If you receive this IRS notice, it can be one of three things.
1. It could be that something you put down on your return is different than the information the IRS received.
Perhaps you made a mistake and incorrectly transposed a number on your amount of wages. Well, the IRS will catch that by looking at their records. There is a simple solution. Look and see if they’re right. If they are, go ahead and pay. There is no need to worry or stress about it. They catch the mistake by matching what you indicated on your tax return with the W2 they received from your employer.
To avoid this notice, be accurate in your tax return. In Tom’s CPA firm, Wheelwright Manahan Family Office, when we prepare tax returns, we don’t have a single person preparing. We have another person perform a detailed review for accuracy by matching the numbers against all the documents so we don’t get notices. Afterwards, there is a second review to look at the return to avoid IRS scrutiny. Tom will look for ways to reduce taxes appropriately as well as avoid use of certain terms the IRS doesn’t like. That’s 3 people preparing your tax return vs yourself. Even if you choose to prepare your return yourself, make sure to have another person double check it. This way, you can make sure your tax return matches all your documents the IRS may have received and help you avoid that notice.
2. The IRS may want more information or state you filed late.
It’s possible they will say you filed late even though you may have filed on time. The IRS charges penalties by the month. So, if you’re one day late, you will have a month’s worth of penalties. For example, if you filed your return on April 15th, but the IRS states you didn’t file it until April 17th, you will have a resultant penalty. When you file your tax return or make an estimated payment, you want to make sure you have some documentation that shows proof you mailed it that day. If sending by mail to the IRS, always send a certified mail return receipt to prove you sent it on that day. The return receipt is to prove the IRS did receive it because they must sign it and send that receipt back to you. If you’re assessed a penalty, you send them a copy of this showing you filed on time. They may claim they never received it, but you have your return receipt saying they did get it. This shows the importance of doing this if you’re going to send them by mail. If you choose to file electronically, make sure you have the confirmation notice that shows you did file on time. Documentation is vital.
3. You may receive an audit.
Avoid stressing about the audit by remembering to never speak with the IRS! This is not your job. You need to involve your CPA. However, if you receive a notice and you can tell it’s a math error or something you did that’s easy to correct like they need a copy of your W2, you may not need to involve your CPA. Still, speak with your CPA. You want to make sure this is a legitimate request from the IRS as there are A LOT of scams out there.
Remember, the IRS will never send you an email or call you. They will always send you a letter. If you receive a call or an email, ignore it. However, if you receive a letter DO NOT ignore it. The IRS sends you a series of notices. Don’t ignore them or they can put a lien on your account and IRS liens are extremely hard to remove and take years to remove. Your first notice will typically be discussing what they found, and the second notice is to let you know you still haven’t responded and you’re still late. The third and fourth notice could result in a lien on your property. Remember, don’t let it progress to that stage.
Don’t be afraid to involve your CPA. The cost of talking to a CPA is miniscule in comparison to the time, anxiety, and cost of dealing with the IRS yourself. CPAs have ways to deal with it. CPAs have a tax practitioners’ hotline where we can contact the IRS and not have to wait nearly as long as you would if you called them. If you receive a bill from the IRS for $50 and you don’t think it’s right, it’s honestly not worth your time to dispute it. You should just pay it. CPAs can work with the machine that’s difficult for you to fight.
What if you don’t have the money?
If you can’t get all the money together by the time you absolutely have to pay it, you can make an installment agreement. This is an agreement for up to five years, where you pay it back. Penalties and interest will continue to run. In addition, another requirement for this installment agreement is you must keep your taxes current for the coming years. For example, if in 2022 you couldn’t pay and have an installment agreement for 2022, you will have to be paid in for the 2023 tax year. Don’t get behind on subsequent years. Once again, remember to watch for scams.
Remember, celebrate if you receive a brown envelope as it’s likely a check for you to deposit.
If it’s the dreaded white envelope, it’s either an audit, a possible mistake, or there’s a penalty. If it’s a simple mistake and you agree with it, then pay it. Don’t stress about it. Send the notice to your CPA to let them know as they will need it for your tax return next year. Now, if it’s not a simple mistake and you need or want to dispute it, then DON’T TALK TO THE IRS. Let your CPA speak with the IRS, especially if it’s an audit. This is why you should have professional tax return preparation. You can probably do your own tax return if you have a simple return with only a W2 and a mortgage deduction. However, if you have a business or own real estate, you should hire a tax advisor. Have your CPA prepare your tax return and make sure they understand the law. They should understand the ways to reduce your taxes legally. When you do this and handle the IRS properly, you will never have to worry about the IRS, and you will make way more money and pay way less taxes.
Want to learn how TFW Advisors® can help you make way more money and pay way less taxes? Schedule a call today!