Your Client Received an IRS Notice. What Should the Tax Preparer Do First?

When a client forwards an IRS notice, the natural instinct is to start answering the notice immediately. In many cases, the better first step is simply to understand what you are looking at.

An IRS letter can involve anything from a routine account issue to an examination, collection action, information-matching proposal, penalty matter, or deadline that affects the taxpayer's appeal rights. The right response depends on the type of notice, the tax period involved, and what has already happened on the account.

Start With the Notice Itself

Before deciding on a response, confirm the notice number, tax year or period, issue being raised, response deadline, and office that issued the letter. Read the entire notice, including the pages that explain response options and appeal rights.

Do not assume that two notices that look similar require the same response. The IRS uses different procedures for examination, collection, information matching, penalties, and account corrections.

Compare the Notice to the Return and the Client's Records

The preparer is often in the best position to determine whether the IRS is working from incomplete information or whether there may actually be a return issue that needs to be addressed.

Pull the filed return, relevant workpapers, source documents, and any prior correspondence. If the issue involves income matching, basis, deductions, credits, or an entity item, identify what was reported and what documentation supported it.

Find Out Whether This Is the First IRS Contact

A client may forward the most recent letter without mentioning that earlier notices were ignored. That matters.

Ask whether the taxpayer has received prior IRS correspondence on the same issue, whether anyone has already responded, and whether the taxpayer has spoken with the IRS. The history can change both the urgency and the available options.

Separate a Notice Response From an Ongoing Representation Matter

Some matters can be resolved with one clear response. Others are the beginning of a longer controversy engagement.

If the issue is moving into an examination, Appeals, field collection, repeated correspondence, or substantial factual development, your firm should decide whether that work fits its normal service model.

The question is not only whether you are technically able to respond. It is whether you want to own the case through the rest of the IRS process.

Watch the Deadline

Not every IRS deadline has the same legal effect. Some notices provide a response period, some offer an administrative appeal opportunity, and some can affect later rights if the taxpayer does not act.

Do not let the client treat the date on the notice as a suggestion. If the notice is unclear or the deadline is close, that is a good reason to escalate the review quickly.

When It May Be Time to Refer

Consider outside controversy support when the issue is outside your normal practice area, the IRS is requesting significant records, the matter is likely to require repeated contact, or the case is consuming more senior-level time than your firm wants to devote to it.

A referral can be limited to the IRS matter. The originating firm can continue handling the client's normal tax preparation, bookkeeping, accounting, and advisory work.

A Practical First-Response Rule

Identify the notice, confirm the deadline, reconstruct the history, review the return and records, and then decide who should own the matter.

If your firm wants a controversy resource available when these cases arise, learn about the Zero Fluff Books Professional Partner Program. If you already have a matter to refer, use our professional referral form.