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What to do if you Receive a Notice From the IRS

IRS notices are pretty common so there is no need to panic if you do receive one in the mail but they do need to be addressed. If you ignore the notice additional notices will follow and penalties/interest could be accruing as time passes.

The first thing you should do is send a copy of the notice over to your tax advisor to find out exactly why you received the notice, you should not just pay the notice right away without finding out the issue first. There are times when the IRS is not correct. A couple common situations that trigger a notice are if you forgot to report dividend income or stock sales on your tax return. The IRS will send you a notice stating that dividends from Company XYZ were not reported on your return and they will give you a figure of the additional tax you owe as a result of this dividend income being added to your return.

A common notice that we often see is a taxpayer forgot to report stock sales on their return. This is a situation where the amount the IRS states you owe is most likely not correct. If you sold $10,000 worth of stock and forgot to report it, the IRS will send you a notice stating you owe taxes on the full sale amount. What the IRS doesn’t do is factor in what you originally bought the stock for. So in this situation you will need to amend your tax return to show not only the sale of 10K but also what you bought it for. So if you bought the stock for $9,000, then you only on taxes on the gain, which in this case is only $1,000. So by amending your return you are not paying taxes on the full $10,000, you are only paying the taxes on the gain of $1,000. So in this situation it is very important to check with your tax advisor and to not just paying the notice without investigating first. Another reason to investigate the notice is to make sure it is real and not a scam.

Please consult your tax advisor on all the above information.

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