Daperis CPAWhat to Do If You Get an IRS Notice for Your Business
Every business owner reacts to an IRS letter one of two ways: shove it in a drawer and hope it's about someone else, or panic and pay whatever number is on the front before reading past the first line. Neither is the move. The actual move is boring by comparison: confirm it's real, figure out exactly what kind of notice you're holding, and only then decide whether you can close it out yourself or need to get someone on the phone.
Most of these are fixable. None of them get more fixable the longer they sit on the counter.
Is This Even Real, Though?
The IRS opens contact by mail. Not a call, not a text, not an email with a link, and definitely not a voicemail threatening arrest by 5pm unless you wire them over money. A genuine notice has a letter number in the top right corner, usually starting with CP or LT, next to a tax year and a specific issue it's referencing. Type that number into IRS.gov before you do anything else. It takes two minutes, and it's the difference between responding to the IRS and wiring money to someone in a call center that isn't one.
So What Kind of Notice Are You Actually Holding?
This is where it matters what the letter is, not just that it exists.
A notice proposing to change your reported income, most commonly a CP2000, isn't a bill, it's the IRS pointing out that a 1099 or W-2 they received doesn't match what you filed. That's a proposal, and proposals are sometimes wrong: income double-counted, an expense that offsets it, a number that just isn't yours. Ignore it and the proposed number becomes real. Respond with documentation and you either fix it or confirm it, either way you're better off than you were before you opened the envelope.
A balance-due notice means the IRS thinks you owe money, whether that's from a return you filed, a math correction, or an adjustment after the fact. Like the previous notice, you want to understand the facts and make sure that you address it. Don't let the notice go unanswered. The longer the IRS doesn't get a response, the more work it is to settle it later on, in addition to potential interest and penalties.
An audit notice, or examination notice, means the IRS wants a closer look at specific items on a specific return. It names exactly what it's reviewing. It doesn't mean that you're in trouble, it just means that the IRS wants to confirm the information that you reported on your return. If you have good records and have been taking legitimate tax positions, this usually can be resolved fairly quickly and painlessly.
How Much Time Do You Actually Have?
The deadline that matters is the one printed on your letter, not a rule of thumb from a blog post, because response windows genuinely vary by notice type. You have to make sure that you read the date before you plan anything else.
And What Shouldn't You Do?
Ignore the letter. If you've ever watched Friends, you're probably familiar with the fact that Monica Geller used to hide junk in her closet so she didn't have to deal with it. While it worked for her, you can't do the same. Ignoring the letter doesn't make it go away.
What you should do however, is not agree to any adjustments or pay it immediately. You heard that right. The correct approach is to read and understand the letter with the help of a professional. Sometimes the IRS makes mistakes, and before you agree to any number, you want to make sure that the letter is correct.
So When Do You Handle It Yourself, and When Do You Call Someone?
A misspelled name, an updated address, a math correction you already caught and agree with, that's a close-it-yourself notice. Handle it in writing, keep a copy and move on with your week.
Call a CPA when the number is real and you don't recognize it, when it's an audit notice, when payroll tax is anywhere in the picture (that exposure follows you personally, not just the business), or, honestly, when you've read the letter twice and still aren't sure what it's asking. A phone call that confirms you're fine costs you nothing. Guessing wrong on something with a deadline costs you a lot more than that call would have.
What Does an Actual Response Look Like?
Pull the return year and the documents the notice references before you write a word. Respond in writing wherever the notice asks for writing, a phone call where you can't prove happened doesn't count for much. Send it in a way that proves it arrived on time, and keep a copy of everything, forever, or at least until the statute of limitations on that return closes.
Why Does This Keep Happening to the Same Kind of Business?
Almost every notice I've helped a client through traces back to something that happened months earlier: quarterly estimated tax payments skipped or guessed at, income that never got reconciled against the 1099s that actually got filed, a return built without anyone checking it against real numbers first. That's the whole case for real small business tax planning strategies, they catch the mismatch before the IRS's computer does it for you. It's also why a firm offering ongoing small business accounting services is worth more than one that shows up once a year in March: somebody was actually watching in between, so there was nothing left for the IRS to flag.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.
FAQ
Does a notice automatically mean I'm being audited?
No. Most are automated matching or balance corrections, not an audit. An audit notice says so directly and names what it's reviewing.
Can't I just call the IRS and sort it out?
For something simple, sure. For a real dollar figure or a disagreement with their math, a phone call with nothing in writing behind it rarely resolves it and leaves you with no paper trail if it doesn't.
I agree I owe it, I just can't pay by the deadline. Now what?
Say so in writing and look into a payment plan before the deadline, not after. An unaddressed balance keeps escalating. A balance you're actively talking to them about behaves completely differently.