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Newsletter - Summer 2007
Rethinking IRS Notices
Lewis Kevelson, Partner, Tax & Business Services |
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A former IRS insider shared a story of how the
director of the IRS’ Philadelphia Service Center
was receiving accolades for increases in efficiency
year after year, despite personnel and budget cuts.
This was surprising considering the main function of the
Philadelphia Service Center, like other IRS service centers,
was to process a tremendous and ever-increasing
volume of tax returns and mail each day.
Legend has it that a high-ranking official from IRS’
Washington headquarters was visiting the Philadelphia
Service Center and excused himself from a meeting for
a restroom break. While using the facilities, he heard a
noise from the ceiling. Before he could react, the ceiling
collapsed and hundreds upon hundreds of tax returns,
letters and other documents tumbled from the rafters.
It turns out that personnel at the service center could
not keep up with the volume of mail and, well, the rest
is history. The director of the service center was quietly
asked to leave.
The point is, the IRS is made up of people, and
people are not perfect. Unfortunately, IRS miscues
often show up in your mailbox in the form of a tax
notice seeking additional money. Human nature
is to get rid of the IRS matter as quickly as possible
and write a check. This strategy may not be the best
solution because IRS Tax Notices, especially those
dealing with income tax filings, are often incorrect.
One such notice, a CP 2000, proposes changes to
your income tax return based on discrepancies between
the tax return filed and information received by the IRS.
For example, the IRS may have received a Form 1099
report showing that you received income for the year.
The notice sets out to tax you on the Form 1099
income, even though the income may already have
been reported on your return and the tax paid.
Another common IRS notice deals with penalties
and interest for late payment of tax or late filing of tax
returns. For the most part, it is difficult to waive the
interest, but penalties can often be abated in full if you
have a good track record with filing and payment of
taxes and this is a one-time miscue. Also, the IRS
will usually waive penalties if you have extenuating
circumstances, such as a medical emergency.
IRS notices may seem intimidating but, for the
most part, boil down to:
■ An issue involving a tax form
■ A discrepancy and request for
additional information
■ A request for payment if you feel the
IRS is correct
The IRS system is designed to allow adequate
time to respond to and question a notice.
Given that the IRS makes mistakes, take some
time to see if the matter can be resolved with a quick
letter to the IRS by alerting them to something they
may have missed. Your tax professional can help
you pinpoint the issue and work with you to get the
information needed to respond to the IRS.
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