Find out below what the best course of action is if you have received an IRS email claiming you underreported your income.
In this article:
- Underreported Income, the IRS, and You
- What to Do Following an IRS Email About Underreported Income
- Asking for Abatement
- Getting Tax Assistance
- When the IRS Email Is Correct
- When You Can’t Pay
IRS Emails About Underreported Income
Underreported Income Definition: For income tax purposes, this is calculating and reporting less income or revenue than what was actually received by the taxpayer.
Underreported Income, the IRS, and You
Every year after tax season, the IRS sends millions of emails to Americans for a variety of reasons, one of which is underreporting net income on tax forms. If you have received an IRS email about underreported income, you’ll need to take action to resolve the problem — even if there was an error made.
In fact, errors are made up to 50 percent of the time. Do not simply let a notice like this go by.
Below, we’ll explain exactly what you should do if you get an IRS email about issues with your income statement.
What to Do Following an IRS Email About Underreported Income
First, you need to figure out if the email is telling the truth about your income. As stated above, the IRS commonly and continually makes errors when it comes to assessing the correct amount of taxes for each citizen.
If you believe the IRS made a mistake, the action you should take immediately following reception of an email like this is to demand abatement.
Again, do not ignore the notice. Always respond to the IRS in written form; do not do so over the phone as it isn’t very effective. Sending documents also allows you to have receipts and copies of the information you exchange with the IRS.
Asking for Abatement
Abatement is the lessening or deletion of something, so here, you’re asking for this demand for extra money to go away completely or be lessened. This is only if the email is erroneous or if you’re not sure whether it’s erroneous or not — but you think it may be.
Most people assume that they cannot fight back against the IRS. They assume that the IRS always wins, and even if they ask for assistance from tax professionals, lawyers, or the IRS themselves, they’ll be met with brick walls and won’t get anywhere.
In fact, we know that the IRS also gets their conclusions wrong about citizens owing more in taxes or underreporting their income on last year’s taxes.
Therefore, if you believe this letter about your income is erroneous, respond accordingly. You should not pay a bill to the IRS you know nothing about, and you do have a right to contest these letters as an American citizen.
Related: 9 Effective Tax Planning Strategies You Should Know
Getting Tax Assistance
In some cases, you may need to get assistance for a challenge like this. Most of the time, the IRS tells you information or makes inquiries in a manner that is nearly impossible to understand.
Huge packets of paper (or email attachments when letters are sent via email) are often sent, which include massive amounts of information, legal jargon, and more. Often, the information comes in a multitude of languages.
The amount of information itself is daunting and may cause you to want to throw the packet away. Do not do this.
You can get assistance for a challenge like this. As long as you respond in a timely manner, the tax will not be assessed yet.
When the tax is not yet assessed, it means you essentially have a grace period during which you can achieve one of three things: You can either get the added tax abated (deleted or lessened), you can have more time to figure out what went wrong, or you can pay the taxes the IRS is demanding (if they are actually due) without having to pay penalties, fees, and interest.
When the IRS Email Is Correct
Sometimes, the IRS gets it right, and they may send you an email, which shows that you underreported your gross income, and they know this because they’ve received other documentation showing that you received X amount of income from X source.
Don’t worry. Often, these types of emails can be the scariest because you realize you’ve made an error on your taxes and you feel like you’re under a spotlight.
In these situations, all you need to do is, again, respond to the email. Errors like these happen.
Maybe you used a faulty income tax calculator, your accountant messed up, or you simply forgot a type of income that you should have reported.
You should respond in writing to the first email you receive concerning the matter. If you can pay at least some of the amount due, do so right away. You can include a check with your letter or use the IRS pay system online to make the payment.
When You Can’t Pay
The IRS will take legal action against you if you owe back taxes and do not pay or respond to their emails and letters. Therefore, the best thing you can do if you owe money but cannot pay is to first, always respond to every email and letter, and second, start an installment agreement.
You need to respond to every email and letter and avoid getting a “final notice,” which is usually an intent to levy (you have 30 days to pay the taxes you owe in full or collection enforcement will begin).
An Installment Agreement Request is a form (Form 9465), which can help you create a payment plan with the IRS to pay off the extra taxes you owe. With this form, you can essentially make your own terms (within reason).
Once you start an installment agreement, as long as you follow the terms and make the correct payments on time, the IRS cannot enforce collection.
If you‘ve received an IRS email claiming that you’ve underreported your income, remember again that you absolutely must take action right away. You should never ignore an email like this.
At the same time, if you are worried that the email may be a phishing scam or a fraud, contact the IRS directly (using the contact information found on their official website) to inquire about the validity of the email in question.
Not reporting adequate income on your tax forms is a serious offense; however, sometimes, there was an error made, or, if not, you’ll have a chance to amend the situation before large penalties and interests are charged.
Have you ever been accused of filing an erroneous tax and income report? What did you do to remedy the situation? Share your experiences with us in the comments section.