Posted by Fletcher Accounting and Tax Service Inc.

Understanding an IRS Mail Notification

Understanding an IRS Mail Notification

Every year, millions of Americans receive unexpected IRS emails.

Sometimes it is a simple matter, and you can quickly solve it. Other times, IRS alerts can be confusing or even incorrect. The best bet is to try to avoid the warning first. To increase the chances of avoiding an IRS alert, here are five actions that will work in your favor.

Write amounts on the correct line

Because IRS alerts (for example, CP2000 underreported warning) can be computer-generated, many are the result of a very accurate mailing system. Even if you report all income at the time of return, the IRS may issue an alert if the income is entered incorrectly.

For example, taxpayers often report non-employee compensation from a MISC 1099 as "Other income" when it belongs to Schedule C, Profit, and Loss of a Company.

Make sure you enter the values in the correct category that match the income tax return line. For more information on income reporting, consult your tax professional.

Do not group income values

It may be tempting to combine values to simplify the tax return and save time. This is not how the information is reported to the Internal Revenue Service. This is a different way to trigger an IRS alert because IRS systems are looking for an exact match. Therefore, if you have done more work this year, you must enter each W-2 separately in your tax software.

As another example, suppose you have multiple stock transactions on your forms 1099-B. Each operation must be reported separately:

  • Including any transaction on Form 8949, which is transferred to Schedule D or
  • Combine activities for each short-term or long term category on your Schedule D. Include an attached spreadsheet showing each operation. The spreadsheet must contain the same information as in Schedule D.

Include all late or correct payment documents

If you receive instructions for correcting information, such as a correct W-2 or 1099, make sure you write them down instead (the tax return software has a checkbox for this) If you receive an accurate statement after sending of the tax return, modify it and include the correct tax return as an attachment.

In some cases, it is possible to wait for a delayed or correct information statement. Submit an extension and pay all taxes calculated ahead of time (not the extension date) to avoid costly penalties and interest.

If you would like to have all your information, submit an extension, and contact the IRS at the end of July for a transcript of your salary and income. Maybe it contains W-2 and 1099 that you were not aware of.

If paper filing, including schedules and information statements

When you or your professional tax e-file your return, electronic copies of your information (W-2, 1099, etc.) and your attachments to Form 1040 (Schedule C, Schedule A, etc.) are returned with your statement. However, when submitting your return, you must attach copies of these documents.

It is not important to send copies of receipts or other documents, but they must be kept for at least three years if they are subject to revision.

No net worth

Use gross amounts of income unless you explicitly ask for the net worth. No net worth due or paid to other sources against amounts due or received from them.

Best course: Be upfront

When the IRS thinks it has not reported all of its revenue, it will send you an alert. Notifications can be confusing; therefore, if you do not understand precisely why the IRS sent a notification, call the IRS or take a closer look at the tax bill. Start with the phone number at the prompt. You can also ask a tax professional to determine if the IRS was correct and to respond with the information needed to correct the error.

Other issues may arise even after the IRS has processed the return and issued a refund. Always open IRS letters immediately and respond ahead of time to get the best result. Learn how to manage an IRS CP2000 alert.

Fletcher Accounting and Tax Service Inc.
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