Got an IRS Notice? What to Do First (and What Not to Do)

Got an IRS Notice? What to Do First (and What Not to Do)

The envelope says Department of the Treasury, Internal Revenue Service, and your stomach drops before you have even opened it. Nearly every Austin business owner who gets one has the same two instincts, panic or the drawer, and both make things worse. Most IRS notices concern one specific item, state it on the first page, and come with instructions and a date. The first hour looks the same no matter what the letter says: confirm it is real, find the deadline, and line up your records and a tax professional before you respond. This is general education, not tax or legal advice, so go over any notice and your response with a CPA, enrolled agent, or other tax professional.

Make Sure It Is Really the IRS

Before you react to what the letter says, confirm the letter itself. The IRS initiates most contact through regular mail delivered by the U.S. Postal Service. It does not open a conversation by email, text message, or social media, and it does not call demanding immediate payment by gift card or wire transfer while threatening arrest. Those are the signatures of impersonation scams, which the IRS catalogs on its recognizing tax scams and fraud page. A real notice arrives by mail, names you and the tax year involved, and describes a specific issue rather than a vague emergency.

If something still feels off, do not call a phone number printed on a letter you doubt. Look the notice number up on irs.gov directly, or have your tax professional verify it. Scammers count on urgency. The real IRS process leaves you time to check.

Find the Notice Number, Then the Deadline

Every genuine IRS notice or letter carries an identifying number, usually in the top or bottom right corner, beginning with CP or LTR. That number tells you what you are holding, and the IRS explains each one on its Understanding your IRS notice or letter page. Some notices are purely informational. Others say the IRS changed something on a return, has a question about it, or shows a balance due. A CP2000, a common one for business owners, proposes changes because income reported to the IRS by third parties, such as banks, payment processors, or clients issuing 1099s, does not match the return. It is a proposal, not a bill, and that distinction matters.

The second thing to find is the response date. Notices that ask for a response state how long you have. Interest and penalties can keep building on a balance due while you deliberate, and some deadlines protect appeal rights that lapse once they pass. Write the date down before you do anything else.

What Not to Do

Do not put the letter in a drawer. A notice does not expire there, and on proposed changes, staying silent can let the process move forward without your side of the story, ending in an assessment you might have contested. Ignoring a notice converts a question into a debt.

Do not panic-pay either. Notices can be wrong or based on incomplete information, and paying a proposed amount without checking it against your own records can mean paying tax you may not owe. Just as risky is firing back a quick, emotional reply or agreeing to changes you do not fully understand. Whether you agree, disagree, or are not sure, the move is the same: gather your records and go over the notice with a tax professional before you sign or send anything.

Pull Your Records Before You Respond

Whatever the notice concerns, a response stands on documentation. If the IRS questions income, your bank statements, processor reports, and invoices are the evidence. If it questions a deduction, the receipt and the business purpose behind it carry the weight. This is the moment that keeping records for the right number of years stops being abstract advice, because the return being questioned is often a year or two old by the time the notice lands.

Clean books make the gathering fast. An owner whose bookkeeping is current can pull the year in question, trace the figure the IRS is asking about, and hand a tax professional an organized file. Balance due notices, for instance, sometimes trace back to underpaid quarterly estimated taxes, and current books show what was earned and paid, quarter by quarter. An owner whose books are a shoebox spends the response window reconstructing the past instead of answering the question.

Get a Professional in Your Corner

This is not the place for solo heroics. CPAs, enrolled agents, and tax attorneys can represent you before the IRS and know what a given notice actually calls for. For anything beyond a purely informational letter, and certainly for proposed changes or a balance due, have one of them review the notice and shape the response. Their fee is often small next to the cost of a misstep.

Our part of the picture is the records. Our tax preparation support service keeps clients’ books and documentation organized year-round, so the file behind a return exists when a CPA asks for it. And if a notice arrived while your books were months behind, catch-up bookkeeping rebuilds the record a response has to stand on. The owners who handle IRS mail with the least stress are not the ones who never receive a notice. They are the ones who open it the day it arrives, know what it is by dinner, and already have the records and the professional to answer it.