Common IRS Notices
As a business owner, receiving a letter in the mail from the IRS can seem like a bad thing. You may immediately think that you are being audited, you made a mistake on your payroll taxes, or that you owe thousands of dollars in penalties and fines. First, take a deep breath and review the notice. Not all notices from the IRS are bad. Let’s take a look at the common IRS notices that a business may receive.
Common IRS Notices
There are endless reasons that the IRS could send a business a notice including:
- You have a balance due.
- You are due a larger or smaller refund.
- There is a question about your tax return.
- The IRS needs to verify your identity.
- They are looking for additional information.
- The IRS changed your return.
- To notify you of delays in processing your return.
Some of the more common notices include:
- Notice of Balance Due (CP14)
- Notice of Proposed Adjustment (CP2000)
- Return Selected for Examination (2205-B)
- Examination Report (Letter 525)
- Notice of Deficiency (Letter 3219)
- Information Request (Letter 12C)
Notice of Balance Due (CP14)
The IRS will send you Notice CP14 when you have unpaid taxes. Upon receiving this notice, carefully review to learn how much you owe and how to pay it. Then, pay the amount you owe by the due date on the notice or set up a payment plan if you cannot pay the full amount you owe. Finally, you can contact the IRS if you disagree with this notice.
Notice of Proposed Adjustment (CP2000)
A business would receive Notice CP2000 when a discrepancy exists between the income or deductions reported on your tax return versus what your customer, financial institution, or another payer reported on an informational return. When a potential discrepancy is identified by the IRS, a tax examiner further reviews the return. If a discrepancy does indeed exist, then Notice CP2000 is issued. It is important to note that this is not a bill. Instead, it is a proposal to adjust your income, payments, credits, and/or deductions. The adjustment may result in additional taxes owed or a refund of taxes paid.
Return Selected for Examination (Letter 2205-B)
Letter 2205-B informs businesses that they have been chosen for audit. Certain businesses, such as sole proprietorships or LLCs might received Letter 2205-A. This letter will provide contact information on the auditor, explain the areas in which the auditor will review, and list the documents that the auditor will need copies of. If selected to be audited, it is in a business’ best interest to have a CPA or tax attorney represent them.
Examination Report (Letter 525)
IRS Letter 525 typically follows an audit when additional taxes are owed. Businesses receive this letter that details proposed adjustments to your taxes. Additionally, this letter outlines the options should a business not agree with the proposed adjustments. In this case, businesses can submit a request for appeal but appeals should be filed within 30 days from the date of this letter.
Notice of Deficiency (Letter 3219)
Either Letter 3219-A or 3219-B mean that the IRS has not heard back regarding Notice CP2000. They send this notice of deficiency requesting the balance due be paid. Letter 3219-N means that the IRS has not received a tax return from you. Additionally, this letter indicates that the IRS has calculated the tax liability for you. Typically, this tax liability will be higher than it should be because the IRS has information on income from forms such as W-2s and 1099s, but little information about potential deductible expenses.
Information Request (Letter 12C)
The IRS would send Letter 12C because they need additional information to process your tax return. Missing information could include:
- Missing forms or schedules to support your entries on certain forms
- Verification of income, withholding, and credit amounts
- Documentation to reconcile advance payments of the Premium Tax Credit (PTC)
These errors can easily be resolved by sending the necessary information to the IRS.
It is critical not to ignore these notices. If your business should receive one of the above notices, work with your accountant or payroll provider to solve the appropriate issues.