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The Types of IRS Audit Notices

If you are ever audited (knock-on-wood) you will receive an audit notice from the IRS. There are different types of audits and, therefore, different ways to respond to audit notices.

Ignoring these notices is the wrong response.

This page:

  • Describes the two types of IRS audit notices.

  • Explains the different degrees of audit notices.

  • Lists forms you may receive.

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The two types of IRS audit notices

Notices for audits fall into two categories: you can either receive an assessment notice or a non-assessment notice from the IRS.

IRS non-assessment notices concern minor errors such as:

  • No signature
  • W-2 not attached to return
  • Form or schedule omitted
  • No indication of filing status

If you get a non-assessment notice, simply attach the information or forgotten form, write across the notice "info attached" and send it back to the IRS in the envelope they provide.

IRS assessment notices deal with the following:

  • Tax payments you claimed to have made but are not credible
  • Math errors
  • Not paying the amount you owed
  • Not paying a penalty you owed

An IRS assessment notice will also be accompanied by a form detailing the error on your tax return. The two most common audit forms are:

CP-2501 - Income Verification Notice
As the title suggests, this form suggests that the IRS does not agree with the income you've claimed.

Even though they are the IRS, you should not automatically agree with their assessment. Review the adjustments they are making to your income to make sure they haven't made the mistake. Here are some common errors.

  • Income they believe to be unreported is actually tax-exempt
  • Income they say you failed to report is really not yours
  • Income was counted twice by IRS
  • Income they say is reported in the wrong year is not. Example: Someone paid you at end of year but you did not receive the payment till the beginning of the following year.

CP-2000 - Notice of Proposed Adjustment for Under payment This notice will be sent to you if they assume the information you provided is faulty. The IRS will automatically bill you for amount you owe. The CP-2000 can also be a Notice of Proposed Adjustment for Over Payment in which case the IRS will send you a refund.

Deciphering the audit notice

Each notice will record all your information, the penalties and interest charged, and the amount you owe.

If you have no idea why you are getting this notice you can call 1.800.829.1040 and request a transcript of your tax account. Or you can write to the IRS and ask for an explanation.

What happens next

The first notice you receive will inform you of the new balance you owe due to either:

  • a math error you made,
  • an adjustment or credit you claimed that should not have been,
  • or a tax payment that was declared but never paid.

The second notice you will receive is Form CP-501, a Reminder Notice of your balance due.

The third notice, CP-504, an Urgent Notice-Balance Due, will be sent 30 days after the 2nd.

If you still fail to respond, a fourth notice will be sent by certified mail 30 days after 3rd notice is sent. This is the Final Notice.

This final and fourth notice also declares the IRS's intent to levy and inform you of your right to a hearing.

If payment is not received within 30 days of the fourth notice being received by you, the IRS has the right to seize your property or garnish your wages.

As you can see, there is no benefit to avoiding or postponing a response. In fact, since the IRS charge you interest on the amount you owe, the longer you postpone payment the larger your balance due becomes.

Never treat notices of delinquent taxes as trivial. The IRS can prosecute you for not filing a tax return or not paying an amount due.

However, if you respond quickly by filing a late tax return or paying the amount due, the IRS typically accepts the return and merely charges you a penalty.

If you do not respond to the notice, more serious steps will be taken.

Next: what to do in case of an audit.

Related IRS Publications

You can get more information about responding to an audit directly from the IRS, in the form of Publication 556.

For more information on your rights as a taxpayer, consult Publication 1.

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