What to Do if You Get an IRS Notice

Receiving a letter of any kind from the IRS can be a heart-attack-inducing moment. Happily, not every piece of IRS correspondence is bad news. Some IRS notices are actually positive, while others are simply meant to inform you of an ongoing situation. Here are some of the most common IRS notices and how to respond to them.

CP501: You have a balance due

The CP501 notice is the first in a series of notices that the IRS sends out to inform taxpayers of a past-due balance. Ignoring the CP501 will result in a flurry of increasingly hostile notices until the IRS finally takes action, potentially in the form of a lien or levy on your income and property. It's wise to respond promptly when receiving this notice so you can deal with the issue before the IRS does anything horrible to you.

The CP501 notice will include your balance due, the due date, and a list of your payment options. If you believe there's been an error and you don't owe what the notice says you owe, then call the phone number on the notice immediately. If you agree about how much you owe but simply can't pay it, you can request an installment plan.

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CP12: Return error

The IRS will send you a CP12 notice if it catches a miscalculation on your tax return. There are a few variations on this notice depending on where the error occurred. For example, if it involved your Earned Income Tax Credit, you'll receive CP12A. The CP12 notice is actually good news because it means you are getting a refund; either the refund will be a different amount than you anticipated, or it will turn out you're getting a refund when you had thought you owed taxes. Assuming you agree with the IRS' correction, you don't need to do anything about this notice. If you think the IRS is wrong, call the phone number on the notice within 60 days. The agency will ask you to provide information to back up your claim that you were correct in the first place. If you can't provide such information, the IRS will reverse the change, but it will also forward your case to the audit department for examination. Correcting the issue might not be worth the hassle of an audit, so if you don't have documents to back up the claim, then you may be better off simply accepting the IRS' correction.

CP01: Identity theft

If the IRS suspects that you have been a victim of identity theft, it will send you one of the CP01 series of notices. The exact notice you get will depend on what's going on with your case. For example, if the IRS believes that your Social Security number has been compromised, it will send you a CP01E, and if the agency has decided to assign you an identity protection PIN, it will send you a CP01A. Technically speaking, no action is required for most of the CP01 notices, but if there's a chance you've been the victim of identity theft, you will certainly want to take steps to resolve the problem, including checking your credit report for fraudulent charges and contacting state and federal consumer protection agencies. Depending on the severity of the identity theft, you may even need to request a new Social Security number from the Social Security administration.

CP11: Return error

Like the CP12 notice, the CP11 indicates that the IRS found a miscalculation somewhere in your tax return and has now corrected it. Unfortunately, if you're getting a CP11 notice, it means the change has resulted in your owing taxes to the IRS. The notice will explain the exact nature of the changes; if you believe the IRS is correct, you'll need to go ahead and pay the balance due indicated on the notice. If you disagree with the changes, contacting the IRS within 60 days of the date on the notice will result in their reversing the change. However, unless you can back up your claims with documentation, you'll be assigned to an auditor, and your return will be audited -- which may not end well for you.

Other notices

The IRS sends out millions of notices every year, using hundreds of different notice templates. If you get an IRS notice that is in any way unclear, call the phone number on the notice as soon as possible and persist until you understand exactly what the notice means and what you need to do about it. If you can't get clear answers from IRS employees, or if the notice involves a significant issue such as a large tax bill or an audit, consider hiring an experienced tax advisor to help you understand and resolve the situation.

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