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When getting a notice from the Internal Revenue Service (IRS) and the States, there are three things to remember as to why you are getting the tax notice:

1.  The IRS or State(s) needs additional information about your tax return.

The IRS or States needs additional information about a deduction or income that you claimed on the return.  Mortgage interest is an item that the IRS will sometime request additional information to determine whether you will eligible for the mortgage interest deduction especially when your mortgage interest deduction is limited.  Another notice or letter of correction that you may receive  is that the estimated tax payments that you’ve made doesn’t match what the IRS or the State(s) has on file.  A majority of the time, it is because they have applied the estimated tax payment to the wrong tax period.  However, I have seen clients forget to send the estimated tax payment in.

2.  What you claimed on your tax return doesn’t match the documentation that the IRS or States received.

Sometimes people get in a hurry trying to file their taxes to get the refund as soon as possible and they file their tax return too soon.  In doing so, they have left off a tax item on their tax return.  Sometimes there are corrections to income–especially gain/loss on investment income.  The IRS will match the tax documents (W-2s, 1099s, K-1s,) they receive to the revenue or deductions you claimed on the return.  When the tax revenue or deduction on the return doesn’t match the tax documents the IRS receives, the IRS will send a correction notice.  Sometimes there is an additional tax liability depending and sometimes there is a refund due.  In either case, you may need to file an amended return if you don’t believe that the notice is correct.

3.     A tax return wasn’t filed.

This is the most serious of the three things to remember when you get a tax notice.  When a tax return isn’t file, the IRS or State(s)will prepare a tax return on your behalf using the information they have received from companies or other taxpayers.  If you owe a tax liability a notice will be sent out for the tax liability.  If the tax liability isn’t paid, then the IRS will place against your bank or investment account.  You should file the return if you do not believe that you have a tax liability.  But if you don’t file the return, the IRS doesn’t know that you have a tax liability and so they send the tax bill.

Getting a tax notice can nerve-racking, especially if you have never received one.  Just take a deep and determine what the IRS or the State(s) are requesting in the notice or what the liability is for.  The main thing to keep in mind is that a notice can be manageable unless you ignore it.  Ignoring a notice from the IRS or the States is not a good thing to do.  It still manageable if you ignore the notices, but sooner or later the IRS and the State(s) gets tired of waiting for a response from you and do what they do best-collect money on tax liabilities based on their calculations with interest and penalties for non-filing and non-payment or late payment.

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