I Got a Letter from the IRS. Here’s What to Do Next

Finding a letter from the Internal Revenue Service in your mailbox can instantly spike your blood pressure. Visions of audits, penalties, and financial ruin flash before your eyes. But take a deep breath. The first and most important rule is: Don’t Panic.

The vast majority of IRS letters are not cause for alarm. They are often simple notices about your account—a discrepancy, a request for information, or a payment confirmation. Here’s a step-by-step guide on what to do next.

Step 1: Don’t Ignore It

This is the cardinal sin of dealing with the IRS. Ignoring a letter will not make it go away; it will only make the situation worse. The IRS operates on strict timelines, and failing to respond can lead to additional penalties, interest, and more serious collection actions. Open the envelope and read it carefully.

Step 2: Identify the Notice

The IRS sends dozens of different types of notices, each with a specific number in the top or bottom corner. The notice number (e.g., CP2000, CP501, CP504) is your key to understanding what’s happening.

• Common Notices:
  • CP2000: Notice of Proposed Adjustment for Underpayment/Overpayment. This is not a bill or an audit. It’s the IRS saying the income you reported doesn’t match the information they received from employers or banks (on W-2s, 1099s, etc.). This is one of the most common notices.
  • CP501/CP502/CP503: These are a series of reminder notices that you have a balance due.
  • CP504: Notice of Intent to Levy. This is a more urgent notice that the IRS will seize your state tax refund or other assets if you don’t pay.
  • CP05/CP05A: Review of Your Tax Return. The IRS is holding your refund for further review. They may just need to verify some information.
  • CP75/CP75A: This notice informs you that your return is being audited and that you need to provide documentation to support specific claims (like the Earned Income Tax Credit or business expenses).

Step 3: Understand the Issue and Your Options

Read the entire notice slowly. It will clearly state:

• What the IRS believes is the issue.
• The amount of tax, penalty, or interest they propose you owe (if any).
• The deadline for your response.
• The specific steps you need to take and where to send your response.

The notice will also outline your rights, including how to appeal the decision if you disagree.

Step 4: Gather Your Records

Before you respond, pull out your tax return for the year in question and all your supporting documents:

• W-2s and 1099s
• Receipts for deductions or credits you claimed
• Cancelled checks or proof of electronic payments
• Any prior correspondence with the IRS

Compare the IRS’s information with your own records. Did you make a simple error, or does the IRS have incorrect information?

Step 5: Formulate Your Response

Your next move depends on whether you agree or disagree with the notice.

If You AGREE with the Notice:
This is the simplest scenario.

1. If you owe money, pay the amount by the deadline to stop additional interest and penalties from accruing.
2. If you can’t pay in full, the notice will provide options. You can often set up a Payment Plan (Installment Agreement) online at IRS.gov.
3. Sign and return the response form if one is included, along with your payment.

If You DISAGREE with the Notice:
It is your right to dispute the IRS’s claim.

1. Write a clear, polite letter explaining exactly why you disagree. Refer to the notice number and your Social Security number/ITIN.
2. Include copies (never originals) of any documents that support your position, such as a missing W-2 or a receipt for a deduction.
3. Mail your response to the address listed on the notice, using the envelope provided if available. Always use certified mail with a return receipt so you have proof you responded.
4. Allow at least 30 days for the IRS to process your response.

What NOT to Do

• Don’t Call the IRS Immediately: The information you need is almost always in the notice. Calling without reviewing it first will be a frustrating experience. If you must call, have your notice, Social Security number, and tax return on hand.
• Don’t Send Original Documents: The IRS can lose them. Send copies only.
• Don’t Respond Angrily: Keep your communication professional and factual. It’s a business transaction, not a personal one.
• Don’t Assume It’s a Scam: While scams exist, assume a letter is real until you verify it. You can check the legitimacy of an IRS notice by logging into your secure IRS.gov account.

When to Seek Professional Help

Consider hiring a tax professional (like an Enrolled Agent, CPA, or tax attorney) if:

• The notice is complex or involves an audit (like a CP75).
• The amount in question is large and you disagree.
• You feel overwhelmed or unsure how to respond.
• The notice threatens a levy (seizure of assets).

Their expertise can be worth every penny in reducing your liability and handling the stress.

The Bottom Line

A letter from the IRS is a prompt for action, not a reason for panic. By responding promptly, understanding the issue, and providing clear documentation, you can resolve the vast majority of IRS notices efficiently and with minimal stress. Handle it like any other important piece of mail—read it, understand it, and take the required action.