Notification from IRS or State Tax Authority

Notification from IRS or State Tax Authority: What to Know

Receiving a letter from the IRS or a state tax authority can be a source of stress and confusion. Watter CPA, located in Rockville, Maryland, is here to help you understand the most common reasons for these notifications and guide you on how to handle them effectively.

How to Respond If You Receive a Notice

If you receive a notice from the IRS or state tax authorities:

• Read the Notice Thoroughly: Take the time to understand the specific reason for the correspondence and any required actions.
• Verify the Information: Cross-check the details in the notice with your records and filed returns to ensure there are no discrepancies.
  
• Respond Timely: Follow the instructions outlined in the letter to avoid further penalties, interest, or enforcement actions.
• Gather Relevant Documentation: Collect any supporting documents, such as receipts, invoices, or bank statements, that may be necessary to respond to the notice.
• Consider Seeking Professional Guidance: For complex matters or if you are uncertain about the appropriate response, reach out to Watter CPA for expert assistance. We can provide guidance and representation to help resolve the issue efficiently.

Common Reasons for Tax Correspondence

There are various reasons why you might receive a letter from the IRS or state tax authorities, including:

• Errors in Tax Returns: Simple mistakes, such as typos or calculation errors, can trigger a notice.
• Unreported Income from RSUs or Stock Options: Income from Restricted Stock Units (RSUs) or stock options not properly reported can lead to discrepancies identified by notices like the CP2000.
• Omissions of Form 1099-K or 1099-MISC Income: Income earned through online platforms (e.g., eBay, Etsy) or freelance work may not be reported if the taxpayer mistakenly believes it is not taxable. Tax authorities require this information to be reported accurately.
• Unreported Retirement Account Distributions: Distributions or withdrawals from 401(k), IRA accounts, or other investments (reported on forms like 1099-R, K-1s, 1099-DIVs) must be included in your tax filing. If overlooked, a letter is often sent to request corrections.
• Failure to File a Required Return: Tax authorities may issue a notice when they believe a required return has not been filed, including zero-activity returns for businesses.
• Discrepancies in Reported Deductions: Overstated or unsupported deductions can lead to an audit or request for more information. This is especially common with high deductions claimed by Schedule C filers, such as freelancers or sole proprietors.

Managing Tax Audits

Occasionally, the IRS or state tax authorities may conduct audits, particularly targeting:

• Taxpayers with Aggressive Deductions: Those claiming unusually high deductions may be asked to provide receipts, invoices, or other proof of expenses.
• Schedule C Businesses: Freelancers, sole proprietors, and single-member LLCs often attract audit attention due to the nature of income and expenses reported.
• Businesses with High Cash Transactions: Entities or individuals that frequently engage in cash transactions may also face additional scrutiny to verify the accuracy of income and expense reporting.

Our Offerings

Watter CPA understands the anxiety that comes with receiving a tax notice. Our team in Rockville, Maryland, provides comprehensive services to address these issues, including:

• Professional Representation: If you are subject to an audit or require assistance in responding to a tax notice, we offer expert representation to help safeguard your interests.
• Expert Guidance: Our knowledgeable team is prepared to assist with various tax issues, from filing amendments to providing clarity on complex tax matters.
• Prompt and Confidential Support: If you receive a letter, scan all pages and share them securely with us at info@wattercpa.com. We can provide remote assistance to clients across all 50 U.S. states and internationally.

Contact Watter CPA Today

If you've received a notice from the IRS or state tax authorities, Watter CPA in Rockville, Maryland, is ready to help. Our experienced team offers expert guidance to clarify the notice, address any concerns, and provide the appropriate response. Whether you need assistance with tax discrepancies, unreported income, or an audit, we ensure your case is handled efficiently and with professionalism.