Tax notices are generally issued for the following reasons:
- Payment discrepancies
If you make quarterly estimated tax payments, extension payments, or payments of balances due, the IRS records those payments in your account. However, we commonly see cases in which the IRS has cashed a check but has not credited the payment to an account. We also commonly see cases where individuals have reported a different amount of payments on their return from what was actually paid.
- Assessment of interest and penalties
The IRS charges interest (and penalties, in certain cases) on any balances due that are paid after the April 15 filing deadline. Unfortunately, if you file an extension, this only extends the due date for your tax return, not the due date for paying any tax you might owe. Thus, if you file a return after April 15 and that return shows a balance due, you will owe interest on that balance.
Since the IRS assesses daily interest charges, the exact interest charge is not fixed until the IRS processes your return and credits your payment. Therefore, you may receive a notice from the IRS with the exact calculation of interest and penalties. The notice will reconcile the final amount of tax, interest, and penalties with the amounts that you have paid and then will request or refund the difference.
- Adjustments from prior years
If there were changes to one of your prior-year returns (either from an earlier tax notice or from an amendment), those changes could have a domino effect and affect the carryovers or calculations on your current-year return. We frequently see cases where the IRS levied interest or penalties on a prior-year return and since it did not receive payment of the interest and penalties, it took them out of an estimated payment amount intended for the current year.
- Income discrepancies
When you earn wages, interest, dividends, or other income, the payer of that income will generally send both you and the IRS a copy of your W-2, Form 1099, or other tax statement to report payment of the income. When the IRS receives your tax return, it will then attempt to confirm that you have reported those income amounts on your return. If the IRS is unable to clearly identify an income item on your return, it will issue a notice to resolve the discrepancy.