Posted by Fred Lake

5 Effective Ways to Avoid an IRS Matching Notice

5 Effective Ways to Avoid an IRS Matching Notice

What is the IRS Matching Process?

Each year employers, banks, and brokerages submit their reports to IRS.  The prepared income tax return must include very important information and documentation to support your report and a correct name or TIN combination to allow the IRS to match the information reported against income included on the payee’s income tax return. The IRS then check the name or TIN combination filed on an information return is correct by matching it against a file containing all social security numbers issued by SSA and a file containing all employer identification numbers issued by IRS. If it matches the name controls on the records, then it is correct. If it does not match or cannot be found, IRS considers it as incorrect.
There are various reasons why you will be notified by IRS, it could be:

  • You have a balance due.
  • You are due to a larger or smaller refund.
  • They have a question about your tax return.
  • To verify your identity.
  • There’s a need for additional information.
  • IRS changed your return.
  • IRS notified you of delays in processing your return.

In the United States, each year Americans get notices from the IRS it could be simple matters and can be figured out easily. But there are times that IRS notices can be confusing or even incorrect. It is still best to avoid the notices and emails from the IRS. A taxpayer must make things work in their favor, thus avoiding the notices in certain ways.
1. Made a typo or math error or forgot to report some income.

This error relates to information in Form W-2, you will probably receive Notice CP2000. The income reported to the IRS does not match to the information you reported on the tax return. The IRS will recalculate the tax liability and the amount difference in the notice.
If the taxpayer made a mistake in calculating the return, then the IRS’ calculation result is incorrect. Tax return amendment is necessary (Form 1040X Amended Return) and must be sent along with the copy of IRS notice sent to you with the explanation why the original return was prepared incorrectly and why you disagree with the recalculations of your taxes. IRS will send you another letter confirming the acceptance of the amended return.
Make sure that amounts are reported in the correct category that matches the line item on your tax return.
2. Don’t group income amounts.
Forms 1099 report different types of incomes individuals received throughout the year. Income has different kinds depending on its source and there is a need to group your income according to its category for they are treated differently.
It is tempting to combine income amounts just to simplify your tax return and save yourself time. Do not do it, this is another way to trigger an IRS notice because IRS systems are looking for an exact match. If you worked several jobs for a year, you’ll need to enter each W-2 separately in your tax software.
For an instance, let’s say you have multiple stock trades on your Forms 1099-B. You must report each trade separately by either: include each trade on Form 8949, or combine the trades for each short-term or long-term category on your Schedule D. Include a separately attached spreadsheet showing each trade. The spreadsheet must include the same information requested on Schedule D.
3. Include any delayed or corrected payer documents.

If you receive any correcting information statements, after you have filed your tax return you must amend your tax return and attach the corrected statement.
In some instance, you are still waiting on a delayed or corrected information statement. It is best to file for an extension and pay any estimated tax liability on the filing due to date (not the extension date) to avoid costly penalties and interest.
If you want to make sure you have all of your information statements, file an extension and contact the IRS in late July to get your wage and income transcript.
4. In the paper, filing includes schedules and information statements.

When you e-file your return, electronic copies of your information statements (W-2, 1099) and your Form Schedules (Schedule C, Schedule A, etc.) are sent with your return. However, when mailing your return, you must attach copies of these documents.
You need not to send the copies of your receipts or other records, but should be kept for at least three years in case you are audited.
5. Use gross income, do not net amount.

Gross income refers to an individual’s total earnings or pre-tax earnings and net income refers to difference after factoring deductions and taxes to gross income. Gross income amounts must be used unless it specially requests the net amount. Do not net amounts due or paid to other sources against amounts due or received from them.
When the IRS suspects that you did not report all of your income, they will send you a notice. Sometimes notices can be confusing if you find it hard to understand the notice you need to call the IRS with the phone number indicated in the notice or look closer at your tax account. This time you might need to seek help from a tax pro to determine whether the IRS was correct and respond with the information the IRS needs to correct the error.

Some issues can arise after the IRS has processed your return and issued your refund. The IRS letters must be opened right away and respond by the due date to get the best outcome. You must also learn more about what to do if the IRS adjusts your refund or sends you a notice.

The IRS strongly encourages the quality review of your data before filing your tax returns to prevent erroneous notices from being mailed to the payees.
If you receive notice or letter, you must respond on or before the specific date required, for two main reasons to minimize additional interest and penalty charges and to preserve your appeal rights if you don’t agree.

Fred Lake
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