What to Do When You Receive an IRS Notice: A Practical Checklist
Received an IRS notice and not sure what to do next? Our practical checklist walks accountants and business owners through the key steps to take.
Getting a letter from the IRS is rarely welcome news, but it is almost always manageable if you approach it methodically. Whether the notice relates to a mismatched filing, a balance due, or a request for more information, the worst thing you can do is ignore it. Here is how we recommend handling an IRS notice when it lands on your desk.
Read the Notice Carefully
Every IRS notice includes a specific notice or letter number, usually found in the upper right corner or on the first page. That number tells you exactly what the issue is. Common notices include balance-due reminders, proposed adjustments to your return, or requests for additional documentation. Before taking any action, read through the entire letter to understand what the IRS is asking for and why they believe there is a discrepancy.
Do Not Panic, but Do Not Delay
An IRS notice does not automatically mean you are being audited or that you owe a massive penalty. Often, the agency is simply requesting clarification or proposing an adjustment based on information they received from third parties, such as employers or banks. However, these letters almost always come with a response deadline. Note the date at the top of the notice and make sure you respond within the given timeframe to avoid additional penalties or further escalation.
Compare the Notice to Your Records
Pull your relevant tax documents and compare them against the figures cited in the letter. If the IRS is claiming a discrepancy, look for differences between what they have on file and what you actually reported. If you use accounting software like QuickBooks, your financial records should make it straightforward to locate the transactions in question and verify whether the IRS’s proposed adjustment is accurate.
Decide on Your Response
Depending on what you find, your response will generally fall into one of three categories:
- You agree with the IRS: If the notice is correct, follow the instructions to pay any balance due or sign and return the agreement form.
- You disagree: If your records show the IRS made an error, write a clear response explaining the discrepancy and include copies of your supporting documentation.
- You need more time: If you cannot gather the requested information by the deadline, call the number on the notice to request an extension.
Keep Thorough Records
Always send your response through certified mail with a return receipt so you have proof the IRS received it within the deadline. Keep a complete copy of the notice, your response, and all supporting documents together in a dedicated file. If you need to reference past tax years or reconstruct financial records to resolve a dispute, having organized, accurate books is essential — and if your company file is damaged or inaccessible during the process, professional QuickBooks data recovery services can help you retrieve the records you need to respond accurately.
Moving Forward
Once you have responded, allow the IRS time to process your reply, which can take several weeks. If the issue stemmed from a bookkeeping error or a misclassified transaction, use it as an opportunity to review your current workflow and catch similar issues before they reach your next tax filing.