Got a Letter from the IRS?
Here Is What to Do First.

In four decades of CPA practice, I have helped hundreds of clients respond to IRS notices. The most common thing every single one of them said when they first called me: "I panicked."

That is understandable. The IRS letter arrives in an official envelope, uses language that sounds authoritative and final, and often comes with a dollar amount. But here is what most taxpayers do not know: an IRS notice is almost always a request for information or a proposed change, not a final determination. You have rights, you have time, and responding correctly matters more than responding quickly.

Step One: Read the Notice Completely

Before you do anything else, read the entire notice carefully. The IRS notice system uses specific codes that tell you exactly what the IRS is asking for. Every notice has a notice number in the upper right corner, typically formatted as "CP" followed by numbers (like CP2000 or CP501) or a letter designation. That number tells you what type of notice it is.

The notice will also contain a response deadline. This is the most important piece of information. The deadline is real, and missing it can escalate a manageable situation significantly.

Common Notice Types and What They Mean

CP2000: This is one of the most common notices. The IRS has found income reported by a third party (an employer, a brokerage, a bank) that does not match what you reported on your return. This is not an audit. It is a proposed change, and you have the right to agree, partially agree, or disagree with supporting documentation.

CP501, CP503, CP504: These are balance due notices in escalating urgency. CP501 is a reminder, CP503 is a second notice, and CP504 is a final notice before the IRS begins collection action. If you have received a CP504, the timeline is more urgent.

Letter 4883C or 5071C: These are identity verification requests. The IRS needs to confirm that you filed the return it received. These require a specific response process and should be handled promptly.

Letter 525 or 531 (Examination): These indicate that your return has been selected for examination. This is what most people call an audit. The scope varies widely, from a correspondence audit by mail to a full field examination.

Step Two: Do Not Ignore It

The IRS notices become more serious with each escalation. A CP2000 that is ignored becomes a CP3219A, which is a Statutory Notice of Deficiency. At that point, your options narrow significantly. The IRS can then assess the tax, and challenging it requires filing a petition with the Tax Court.

I have seen taxpayers ignore notices for months because they were afraid, only to find that the original issue, which was often correctable, had become a much more complicated problem. Ignoring an IRS notice is always the wrong decision.

In my experience, the taxpayers who have the worst outcomes with the IRS are not the ones who made the biggest mistakes. They are the ones who waited the longest to respond.

Step Three: Do Not Respond Alone

This is where I am most direct with clients: responding to an IRS notice without professional guidance is one of the most expensive mistakes a taxpayer can make. Not because the IRS is adversarial, but because what you say in your response creates a record. Volunteering information you were not asked for, using imprecise language, or conceding points you did not need to concede can turn a minor adjustment into something much larger.

A licensed CPA or enrolled agent can review the notice, determine whether the IRS's proposed change is correct, gather the documentation needed to respond, and communicate with the IRS on your behalf. That communication happens in writing, through established channels, and with the precision that the situation requires.

What Happens After You Respond?

The IRS processing timeline is slow. Most responses take eight to twelve weeks to receive an acknowledgment, and resolution can take longer depending on the complexity. The important thing is that a timely, complete response stops the escalation clock and protects your rights during the review period.

If the notice results in additional tax owed and you disagree, there are several layers of appeal available: the IRS Office of Appeals, Tax Court, and in some cases federal district court. A CPA can help you understand which path makes sense for your situation.

If You Owe Money

If you receive a notice and the IRS is correct that you owe additional tax, paying promptly reduces the interest and penalties that continue to accrue. If you cannot pay the full amount, the IRS has installment agreement programs, offers in compromise, and other resolution options. These are also situations where having a CPA represent you ensures you are using the right program for your circumstances.

The Bottom Line

An IRS letter is not the end of the world. In most cases, it is the beginning of a process that has a manageable resolution. But it requires prompt attention, careful response, and in almost every case, professional guidance. If you have received a notice and are not sure what it means or what to do, call us.