A friend of ours was floored recently when she received a letter from the IRS. Her first thought was our own first rule of IRS correspondence: Do not panic. In fact, “Do not panic” is also our second and third rule. Our friend’s second thought was, “Good luck with that.” It took her an hour to start breathing normally, she said — and that was before she opened the letter.
It is a common reaction, and there may be no way around it. “I felt as if I’d run into Death,” our friend said. “I couldn’t shake that ‘Appointment in Samarra’ feeling. There’s no escape. The IRS will find me.”
One of the most important things to remember about the IRS is that the IRS will not call you on the phone, email you or poke you on Facebook. The IRS always writes. The only official correspondence you will receive is through the mail.
Another important thing: Letters from the IRS are not generated by people. They are generated by computers. In our friend’s case, the system detected that she had not filed a 1099 with her 2013 return while the holder of her Roth IRA had.
The result? To the IRS, that meant unreported income. The system kicked out the default unreported income letter with all the appropriate forms, and just a few days later it landed in our friend’s mailbox.
The letter said she owed $10,000 in back taxes, interest and penalties. She read it over several times and called her broker for help. He offered some information but recommended she consult with a tax attorney. With his help, it took about a week to straighten things out, a week of sleepless nights and a deeply furrowed brow, but she was relieved to confirm that owed nothing.
If you receive a letter from the IRS, take a few minutes to collect yourself before opening it. When you are confident you can process the information, read the letter carefully. Try not to be intimidated by any dollar amounts noted (usually in bold type). As our friend discovered, the calculation is based on some default formula that may have little connection to your circumstances.
Correspondence from the IRS always includes instructions about next steps. Here you have a choice: You can follow the instructions carefully and research the matter on your own, or you can contact a tax professional or tax attorney for help. They are the ones who will not panic, and there is a good deal of comfort in that.
