About 3% of taxpayers get a notice from the IRS each year. Luckily, it's not the same 3% every year. What should you do when you receive a letter? First of all, don't ignore it. That would be a big mistake. The IRS will not forget and will harass you forever.
Most of the time the IRS is asking you about a mistake they think you made on your tax return. Take a deep breath and read the letter. Then read it again because you freaked out just opening the envelope. Compare what they say to what is on your tax return (you did keep a copy of your tax return didn't you).
The IRS sees the majority of the items on your return electronically.The most common correction they suggest is income that is not reported on your return. They might have received a 1099-Int from a bank that does not appear on your return.
They are both right and wrong if they received information that indicates that you sold some stock that was not reported on your return. They will claim that you owe tax on the total amount you received from the sale of the stock. That part is wrong. You only owe tax on the profit you made. You will need to prepare a Schedule D andForm 8949 to support the correct calculation of the tax.
If they are right, sign the notice and send them a check. If they are wrong, and they are 20% of the time, you need to explain why they are wrong.
If they are wrong and you write them back, here is what you DON'T say:
* Don't tell then how stupid they are.
* Don't explain all the circumstances around the transaction or error. (They really don't care that Aunt Sarah is somehow involved.)
* Don't apologize.
* Don't address the envelope to the Infernal Revenue Service.
And here are some DO's.
* Do type the letter. You want them to be able to read your response.
* Do keep the letter short, one page should be enough.
* Do stick to the facts.
* Do be polite.
* Do sign the letter.
* Do respond quickly
* Do thank them for their help, no matter how much it galls you.
If the letter says you are being audited, freak out and call your CPA.