There are certain things you don’t want to see when you open your mailbox. Some you are expecting – power bill, phone bill, any mail that includes a balance due, really. Then there’s the type of mail you pray you won’t receive – you dread – a letter from the IRS.
Let’s pause for a quick note: I assume you, dear reader, are a law-abiding citizen who files your taxes correctly, to the best of your knowledge. Even so, if you receive a letter from the IRS, would your first reaction be “Oh f***! Am I being audited?” It would be understandable. Letters from the IRS can certainly alarm taxpayers. But don’t panic just yet.
The question: What is my letter from the IRS regarding?
Obviously, the best way to find out the answer is to open your mail. But, let’s say you have that nifty “informed delivery” mail service and you learn that you have mail coming from the IRS that hasn’t arrived in your mailbox yet. So, suddenly I – I mean you, we’re talking about you here – have hours or days to wait before you can open your mail and dispel the mystery. Your vivid imagination is fueled by stories you’ve heard about people owing the IRS money (with penalties and interest!).
So the IRS sent you a letter you can’t open because it’s not physically there yet, or you’re just paralyzed by fear. Here’s what it could be:
- The IRS has a question about your tax return
- They need additional information
- They changed your return or are proposing a change
- They need to verify your identity
- They’re notifying you of delays in processing your return
- They’re notifying you that you qualified for a stimulus check (hooray!) which you may receive soon or have already received months ago
- You have a balance due
- You are due a larger or smaller refund
The uncertainty: Is it really from the IRS or is it a scam?
In normal times, you could call the IRS to verify that the communication is valid and discuss it with them. But currently in 2021, the IRS live phone assistance is extremely limited and other channels are recommended to verify a communication.
- Check the IRS website here to learn more about your notice
- Or send the letter to your accountant to ensure validity
The fear: I’m scared to open mail from the IRS – am I getting audited?
Mail communication from the IRS really needs to be opened, read carefully, and addressed immediately if action is required. Odds are, you are not being audited! As mentioned above, some letters and notices are simply asking for clarification or additional information for a recent tax return. Hand the envelope to another person to open for you if you must. But seriously, don’t ignore it.
The skepticism: Does the IRS call, text, or email about tax payments/penalties?
According to the IRS website, the IRS will not call to demand immediate payment of delinquent taxes using a specified payment method, nor will they demand payment of delinquent taxes without the opportunity to appeal. However, there may be instances where a person will receive a phone call from an IRS representative. In most cases, the phone call will be preceded by a letter notifying the person of the upcoming phone call.
The IRS will not use email, text, or social media to contact you. Any attempts to contact you via these methods should be reported immediately as follows:
- Impersonation scams: Report to the Treasury Inspector General on the IRS Impersonation Scam Reporting webpage
- Phone & mail scams: Report to the IRS at email@example.com
Learn more about identifying and reporting IRS scams here.
The question: If the IRS asks for additional information does it mean I’m getting audited?
No, a request for information does not necessarily mean you will have your tax returns audited. Simply responding will take care of most IRS letters and notices. There’s no need to call the IRS or make an appointment at a taxpayer assistance center for most notices.
Important note: Taxpayers often receive a notice of “proposed” changes with a balance due. The proposed balance due is not a bill and in our experience, proposed changes are very often not accurate. This happens because the IRS doesn’t have all relevant information. Do not send payment for a proposed change without figuring out why they changed your tax return!
The what-if: Would I have to provide requested info or agree with a change?
If the IRS is requesting information or a response, you need to respond within the designated time, typically 30 days. Even if you do not agree with the notice, you still need to respond. According to the IRS website, you should mail a letter explaining why there is a disagreement with the IRS. The address to mail the letter is on the contact stub at the bottom of the notice. Include information and documents for the IRS to consider and allow at least 30 days for a response.
The odds: What are the chances I would get audited?
The IRS conducts audits on less than 1% of returns for many tax brackets. With higher tax brackets, the chance of audits increases. Below are a few stats from the IRS based on tax year 2015 (more details can be found here):
|Total Income||Audit Rate|
$50,000 – under $75,000
|$75,000 – under $100,000||0.49%|
|$200,000 – under $500,000||0.55%|
|$1 million – under $5 million||2.39%|
|$10 million and above||
The question: What do I do if I’m getting audited?
The IRS will provide you with a written request for specific documents they want to see. Here’s a listing of records the IRS may request.
The IRS accepts some electronic records that are produced by tax software. The IRS may request those in lieu of or in addition to other types of records. Contact your auditor to determine what they can accept.
The law requires you to keep all records you used to prepare your tax return – for at least three years from the date the tax return was filed. Numberwise generally recommends keeping tax records for five years to be safe.
The hypothetical: How would I fare in an IRS audit? What would the end result be?
The result of an audit will naturally depend on the accuracy of your tax return(s) being examined. Having your financial documents organized and your bookkeeping in order should make providing requested information to the IRS much simpler. Some audits are kicked-off because an error is found or suspected, while other tax returns are chosen randomly for examination. This means the conclusion of an audit could actually result in no change, if you substantiate all of the items being reviewed.
The bottom line
If you receive a letter from the IRS, do not panic. The IRS sends many routine communications that are not audit-related. Unless you are earning $500,000 or more annually, your chance of being audited is less than 1%. And finally, even if you are selected for an audit, it does not necessarily mean you’re in trouble or will owe the IRS money. The most important thing to do when you receive something from the IRS is open it, read it carefully, and respond promptly if they request information. If fear is stopping you from opening that envelope, you can always bring it to your accountant to open – you wouldn’t be the first one.
Eager to learn more? Dive into these Numberwise articles:
Tax planning explained
5 easy steps to get yourself audited
Is your accountant ripping you off?