Spring 16 Newsletter – Tax Letters and Notices

Over the last few years, Congress has been shrinking IRS staffing through budget cuts. To further this shrinking, IRS employees will not be replenished after any of the staff leaves for retirement. With  these types of initiatives, the IRS has been relying on their computer systems to check your return. With that, there is usually no human interaction with the normal e-filed return.  Not to mention, it is taking an enormous amount of time to get anything done with the IRS.

The IRS system works on an algorithm that flags certain returns. When we say “flags,” it literally is a flagging system with Green, Yellow, and Red Flags – just like a stop light, Green is Good, Red is Bad. If something is flagged yellow or red, a computer letter could be issued. Most often, these are only requiring backups to prove the deduction or credit. The other big way you receive a computer letter is when an income form, w-2 or 1099, was not filed with the return.

Recently a client received the income type letter, a $2900 bill from the IRS for a missing 1099. In some cases, we can file an amended return to correct the IRS findings. We saved the client more than $2700 in taxes, penalties, and interest by just properly reporting the income on an amended return.

The states are just as bad. Another recent client letter stated that Massachusetts received a misfile. With dual states, Mass does not always receive the proper forms. Mass over-calculated the return stating the client owed $3300. They were actually due a refund. So we saved that client over $3300.

Sometimes, many times, the IRS just needs simple backup from School or College, a form did not travel with the E-file, or other simple matters that need to be addressed. We can help with any and all matters with the IRS or state, please don’t think there is an error with your return. Our job doesn’t stop after you leave with your grey folder. This is the reason we offer the “No Stress” Tax Assurance for $34.00. We may need a Power of Attorney to speak with the IRS, but we will advise when you stop in. Important: call us first, before making a payment or responding to any IRS or State Notice. We will guide you properly.

Also check out our new page on this site: https://nakowiczfinancial.com/tax-services/notices-and-letters/. Very soon we will have a way for you to diagnose what most notices are and what they mean. If you purchased the “No Stress” Tax Assurance than the fee is waived.