The IRS Notice Boom (Part 3)

Where the IRS is concerned, there is no defined busy season. IRS compliance systems and staff work year-round on tax compliance issues, consistently monitoring activity and issuing notices.

The IRS sends certain types of notices throughout the year. For example, in May and June, practitioners can expect notices related to the tax returns they filed for their clients before the April 18, 2011, deadline. The following is a sampling of such notices.

CP23/24, Estimated Tax Discrepancies. Retirees, small-business owners, or investors who make estimated tax payments may receive this notice when estimated payments reported on their return were incorrect. Practitioners should review payments their clients made to the IRS to see whether the payments were posted correctly. If so, practitioners can facilitate payment of the balance or help dispute the account discrepancy.

CP14, Balance Due. Clients who did not pay an outstanding balance when they filed their return will receive this notice. Practitioners can help their clients make arrangements to satisfy the balance with the IRS.

CP2000, Underreported Income Adjustment. Investors, small businesses or taxpayers filing for early refunds may receive this notice when income was not reported on their return (most likely from 2009). Practitioners may need to reconcile the discrepancy and respond to the IRS, or investigate whether the income reported is their client's income. It may have resulted from identity theft or an incorrectly filed information statement.

CP88, Refund Hold Due to Missing Tax Return. Clients may receive this notice when the IRS has not received their tax return. This is more common for returns filed by paper or for e-filed returns that the IRS rejected with no follow-up. Practitioners should immediately file the return. If there is a balance due, practitioners can consider submitting a penalty abatement request with the return if there is reasonable cause or if the return was filed but not recorded by the IRS.

Letter 3850/1-B, Appointment Letters for Employment Tax Audit for the IRS National Research Program. Employers receive this notice when they are selected for an IRS audit to determine whether their contractors are actually employees. Practitioners should review their clients' use of independent contractors.

CP12/CP13, Math Error Notices (IRS adjusted a filed return due to a miscalculation, changing the refund). Form 1040 filers may receive this notice when the IRS recalculates their return. Practitioners should recheck the return for accuracy, and if they dispute the adjustment, contact the IRS to correct the error.

CP11 series. Clients may receive these notices when they take new IRS credits or the Earned Income Credit, or when the IRS adjusts the return due to a discrepancy. The IRS thinks there was an error on the return, resulting in a balance due. Practitioners may need to prove a credit to the IRS or help their client make arrangements for the unpaid balances.

© Accounting Today, 2011.

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