What to Do When You Get an IRS Notice: A Small Business Owner's Action Plan

The unexpected arrival of an IRS notice can momentarily halt a small business owner's day. While it's natural to feel a pang of concern, the power to respond effectively lies entirely in your hands. Many IRS letters are simply requests for clarification or notification of minor issues, not the onset of a major problem. As a Certified Public Accountant (CPA), my goal is to equip you with a clear, calm strategy to address any IRS communication head-on. Here's your step-by-step action plan to confidently manage an IRS notice.

Step 1: Don't Ignore It – Open and Read Immediately

This is the most critical rule. Ignoring an IRS notice will only escalate the situation, potentially leading to increased penalties, interest, or even collection actions.

• Open it promptly: Many notices are time-sensitive, with specific response deadlines.

• Read the entire notice carefully: Understand why the IRS is contacting you. Look for:

  • The Notice Number: Usually found in the upper right-hand corner (e.g., CP14, CP2000, Letter 2205-B). This code explains the type of notice.

  • The Issue Date: This is the date the IRS sent the notice.

  • The Response Deadline: This is crucial! Note it immediately. It's often 30 days, but can be shorter or longer depending on the notice type.

  • The Reason for the Notice: Is it about a balance due, a discrepancy, a missing return, or an audit?

  • What Action is Required: Does it ask for payment, information, or an explanation?

    
    

Step 2: Verify Authenticity (and Beware of Scams)

While most notices are legitimate, it's always wise to be cautious.

• IRS communications are almost always by mail: The IRS generally will not initiate contact with you by phone, text message, or email, especially for a demand for immediate payment.

• Check for official markings: Look for the IRS logo, a notice number, and a return address.

• If in doubt, contact the IRS directly (but not using a number from the suspicious letter): Use the official IRS website (IRS.gov) to find their contact numbers, or better yet, contact your CPA to verify.

  
  

Step 3: Understand the Type of Notice

Different notices require different responses. Here are some common types small businesses might receive:

• CP14 (Balance Due): The most common notice. It means you owe money for unpaid taxes.

• CP2000 (Notice of Proposed Adjustment): Indicates a discrepancy between income or deductions reported on your tax return and what third parties (like banks or clients) reported to the IRS on informational returns (e.g., 1099s). This is not a bill, but a proposal to adjust your taxes.

• CP2100A (Incorrect or Missing TIN on 1099s): A common warning if the Taxpayer Identification Number (TIN) on a 1099 form you filed doesn't match IRS records. This often requires you to correct the issue or begin backup withholding.

• CP259 (You Didn't File a Required Return): The IRS believes you were required to file a specific return (like a Form 941 for payroll or Form 1120 for a corporation) but they haven't received it.

• Letter 2205-B (Return Selected for Examination): This is an audit notice. It will specify the tax year(s) and areas the IRS wants to examine.

• CP504 (Urgent Notice – Intent to Levy): This is a serious notice, indicating the IRS intends to seize property or garnish wages due to unpaid taxes. This usually comes after previous ignored notices.

  
  

Step 4: Gather All Relevant Documentation

Whatever the notice, supporting documentation is key.

• Locate the specific tax return: Find the tax return (and all supporting schedules and forms) for the tax year referenced in the notice.

• Gather supporting documents: Collect all relevant receipts, invoices, bank statements, canceled checks, payroll records, 1099s, W-2s, and any other paperwork that supports the figures on your return related to the IRS's query.

• Do NOT send originals: Always send copies of documents. Keep your originals safe.

  
  

Step 5: Formulate Your Response – And When to Call Your CPA

This is where strategic thinking comes in. Your response will depend on whether you agree or disagree with the IRS's findings, but for many notices, professional help isn't just an option—it's your best defense.

• If you agree and can pay:

  • Follow the instructions in the notice.

  • Make the required payment by the due date.

  • If you can't pay the full amount, discuss payment options with the IRS (installment agreement, offer in compromise). Your CPA can help negotiate these terms.

  • Keep a copy of your payment confirmation and the notice for your records.

• If you disagree, or if the notice is complex:

  • Contact your CPA. Do not respond to the IRS or provide any documents until you've consulted your tax professional.

  • Your CPA can interpret the notice and formulate the optimal response: They understand the nuances of IRS language and will clarify precisely what the IRS is requesting or asserting. They will draft a clear, concise, and professional letter explaining your position, ensuring all necessary supporting documentation is included.

  • Your CPA can represent you: For audits (like a Letter 2205-B) or significant proposed adjustments (like a large CP2000), your CPA can communicate directly with the IRS on your behalf, saving you time, stress, and potential missteps.

    
    

Step 6: Follow Up

After sending your response, don't just forget about it.

• Monitor your mail: The IRS may send additional notices or requests for more information.

• Keep copies: Maintain a complete file of all IRS correspondence and your responses.

Don't Let an IRS Notice Derail Your Business – Get Expert Guidance!

Receiving an IRS notice can be a moment of anxiety for any small business owner. But remember, it's often a solvable puzzle, not a crisis. Your calm, organized response, coupled with expert guidance, is your best defense. As your trusted Certified Public Accountants, we specialize in demystifying IRS communications, strategizing effective responses, and representing your best interests. Don't waste time worrying or risk costly mistakes by going it alone. Contact us today for a personalized consultation – we're here to help you understand, respond, and protect your business.