Receiving an IRS proposed assessment notice means the IRS believes there may be errors or omissions in your filed tax return that warrant additional taxes, penalties, or interest. Understanding how to respond can prevent escalation and help protect your financial interests.
What Triggers an IRS Proposed Assessment?
The IRS issues a proposed assessment after reviewing your return and identifying issues such as:
- Information matching discrepancies: Mismatches between income or deductions you reported and third-party forms like W-2s or 1099s.
- Mathematical errors: Calculation mistakes resulting in underreported tax.
- Disallowed deductions or credits: Claimed deductions or credits that don’t meet IRS standards or lack proper documentation.
- Audit findings: Results from audits may lead to proposed adjustments.
Common notices for proposed assessments include IRS Letter 525 and various Notice of Proposed Adjustment letters.
How to Respond to an IRS Proposed Assessment
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Read the Notice Carefully: Note the tax year, reasons for the proposed changes, amounts involved, and deadlines. This information is crucial for formulating your response.
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Gather Documentation: Collect tax returns, W-2s, 1099s, receipts, and any supporting materials relevant to the disputed items.
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Determine Your Position: You can:
- Agree and pay the amount due.
- Disagree and provide evidence supporting your position.
- Partially agree and clarify your position.
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Write a Clear Response Letter: If disputing, include your name, tax ID, notice date and number, a detailed explanation of disagreements, and copies of all supporting documents. Never send originals. Sign and date your response.
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Submit on Time: Mail your response to the address on the notice by the deadline. Using certified mail with a return receipt is recommended for proof of delivery. If you agree and need payment options, explore installment agreements or other IRS payment plans.
After You Respond
The IRS will review your reply and either accept your explanation or issue a Notice of Deficiency if disagreements remain. A Notice of Deficiency allows you to petition the U.S. Tax Court within 90 days to contest the assessment.
Common Mistakes to Avoid
- Ignoring the notice or missing the deadline.
- Providing vague or insufficient documentation.
- Sending original documents.
- Failing to keep copies of correspondence.
Additional Resources
For further guidance on IRS notices and responses, see How to Respond to an IRS Notice and IRS Notice of Deficiency.
IRS Statute of Limitations
The IRS generally has three years from filing or the return due date to propose assessments, but exceptions can extend this period.
When to Seek Professional Help
If your proposed assessment is complex or you disagree significantly, consider consulting a tax professional, such as a CPA or Enrolled Agent, to assist with your response.
Sources:
- IRS, Understanding Your Rights as a Taxpayer
- IRS, Notice of Deficiency
- Investopedia, Proposed Assessment