Subscribe to Entrepreneur for $5
Subscribe

Tax Defense Network | Brand Spotlight Partner What is this?

You Received a Notice From the IRS. Now What?

Finding a resolution to an IRS notice doesn't have to be a painful mess. Here's what you need to know.

As a business owner, you are laser-focused on developing a product or service, hiring a great team, finding customers, and taking your company to the next level. While taxes aren't in your wheelhouse, you do everything you can to make sure your taxes are done right.

Shutterstock

But one day, unexpectedly, you receive a notice from the IRS. There are any number of reasons a business can receive a notice from the IRS—some are fairly straightforward, others more complicated. What are you supposed to do now?

The IRS temporarily suspended many collection actions in March 2020 due to the Covid-19 pandemic. After June 15 of this year, however, it began issuing levy notices and ramping up collection efforts. This includes not only wage and bank levies, but also tax liens. The IRS is also increasing its audits efforts by targeting high-income earners ($400,000 or higher) and wealthy small-business owners.

That sounds scary, but if you receive a notice from the IRS, it doesn't mean you should panic. Not all IRS notices/letters are requests for payment or threats of collection action. The IRS may send a notice if it needs additional information, wants to verify your identity, has questions about your tax return, or has made a change to it.

According to the Tax Defense Network, about 10 percent of taxpayers—individuals and businesses combined—receive tax notices every year. The Tax Defense Network is a national tax debt resolution company that provides individuals and small-business owners with affordable tax preparation and tax relief services. They work to establish tax resolutions that fit their clients' needs and budgets to help prevent or stop collection actions at the state and federal levels.

Finding a resolution to an IRS notice doesn't have to be a painful mess. We spoke with the team at the Tax Defense Network to discuss some of the collection notices small-business owners might receive from the IRS and the steps they should take if they receive one.

Notice CP518 Business Notice

Reason for notice: Unfiled tax returns

If you do not reply to this notice, the IRS can prepare a Substitute for Return (SFR) and determine what tax you owe. That's not good news. The SFR will not include any deductions or credits you may be eligible to receive, so your tax liability will be significantly higher than if you file on your own.

Prepare and file the tax returns for the years listed on the notice. You can submit these electronically if it's less than two years overdue. When you do, be sure to include any required payment(s). If you can't pay in full, pay what you can when you submit the return.

Next, you'll need to apply for an IRS payment plan or explore other tax relief options to address the outstanding balance and avoid collection actions.

If you think the IRS made a mistake for the tax year(s) in question, complete the response form provided in the notice. You'll want to include the date of when you filed or explain why you aren't required to file for that year.

Notice CP501 Reminder of Balance Due

Reason for notice: Outstanding tax bill

If you receive this notice, the first step is to review all information contained in the letter and take note of the payment due date. You'll want to make payment arrangements (pay in full or installment agreements) or explore your other tax relief options.

If you disagree with the information in the notice, contact the IRS at the number provided in the notice. You can also contact a tax professional to review your options.

Notice CP504B Notice of Intent to Seize Your Property or Rights to Property

Reason for notice: You've ignored previous requests for payments and still have a balance due

You'll need to read this notice very carefully as it is the last you will receive before the IRS sends a notice that they are levying your business and/or personal assets.

Pay attention to the payment due date (typically 21 days from the date of notice) and consider your payment options. If you can't pay in full, you'll need to apply for a payment plan or see if you qualify for other tax relief options. Failure to pay in full or make payment arrangements with the IRS will cause the failure-to-pay penalty fee to increase from .5 percent to 1 percent per month.

Same as above, if you disagree with the amount owed or already paid your balance, call the number on the notice and speak with the IRS as soon as possible. You can also reach out to a tax professional for assistance.

Notice CP297 Intent to Seize Your Assets and Notice of Your Right to a Hearing

Reason for notice: Final notice of unpaid tax balance

Don't delay reading this one! You only have 30 days to respond to this notice or the IRS will move to levy and/or place a lien on your assets.

Review all information and respond before the deadline date. You'll need to either pay your balance in full or make payment arrangements. This may include payment plans, Offer in Compromise, or other tax relief options.

If you believe the IRS has not followed due process in trying to contact you regarding the tax debt, or the tax amount is incorrect, you can appeal using Form 12153, Request for a Collection Due Process or Equivalent Hearing. This will delay levy and lien actions until the hearing is held. Failure to respond to this notice will result in the IRS levying your business assets and filing a Notice of Federal Tax Lien.

Dealing with the IRS on your own can be intimidating. Don't be afraid to ask for help. A tax professional can not only help you determine what action, if any, is necessary, but also help you find the best solution for your tax situation.

Click here to learn more about how the Tax Defense Network can help your small business with its tax-related issues.

Tax Defense Network

Brand Spotlight Partner

Spotlight is brought to you by the Entrepreneur Partner Studio, which creates dynamic and compelling content for our partners.

Opinions expressed by Entrepreneur Spotlight partners are their own.

Entrepreneur Editors' Picks