By: Nora Halstead

Why IRS Notices Happen

Receiving an IRS notice can feel stressful, but it does not necessarily mean you did something wrong. Notices are often automated and may relate to simple mismatches, missing documents, or clarification requests. In 2025, the IRS continues to expand automated matching using bank data, digital payments, brokerage activity, and employer-reported information. This means even small discrepancies can trigger a notice.

Understanding IRS Notices and Their Importance

Understanding what the notice means and how to respond ensures the issue is resolved cleanly and quickly. Below are the things you should remember when dealing with an IRS notice.

Do Not Ignore the Notice

The most crucial step is to read the notice and take it seriously. Ignoring an IRS notice can lead to:

• Penalties
• Interest
• Collection action
• Frozen refunds
• Escalation to enforcement

Every notice has a response deadline. Missing it makes the process more complicated.

Identify the Type of IRS Notice You Received

IRS notices fall into several categories. Common types include:

• Balance due notices
• Underreported income notices
• Missing or mismatched forms
• Math error notices
• Identity verification requests
• Audit letters
• Request for supporting documentation
• Adjustment notices

Each notice has a code at the top that indicates why it was issued. Understanding the type helps determine the appropriate response.

Compare the IRS Information to Your Records

The IRS notice usually includes:

• The income the IRS believes you earned
• Deductions they question
• Credits, they are adjusting
• Missing forms or schedules
• Amounts they believe you owe

Compare these details to your own documents:

• W2s
• 1099s
• Brokerage statements
• Loan forms
• Receipts
• Your filed tax return

Often, the issue is simply a document the IRS received that was not reported on the tax return.

Collect Supporting Documentation

If the IRS believes you underreported income or incorrectly claimed deductions, you must gather documents to support your position. These may include:

• Receipts
• Invoices
• Contractor agreements
• Mileage logs
• Bank statements
• Settlement statements
• Proof of payment
• Brokerage summaries

Good documentation allows you to respond confidently.

Do Not Call the IRS Without Understanding the Notice

Calling the IRS before reviewing the notice can create confusion. The IRS representative cannot change the notice without supporting documents. First, gather your information, then contact your advisor.

Understand Whether the IRS Is Requesting a Response

Some notices require a response. Others are informational. The notice will state clearly whether you must:

• Respond by mail
• Provide documentation
• Call for identity verification
• Agree or disagree with a proposed change

If you are unsure, your advisor can interpret the requirements for you.

How to Respond to an IRS Notice

If you agree with the IRS adjustment, here’s what you can do:

• Sign the notice to confirm your acceptance

• Pay the balance or adjusted amount

• Set up a payment plan if necessary

• Wait for the refund adjustment, if applicable

Before moving forward, your advisor will confirm the accuracy of the adjustment to ensure it’s in your best interest.

On the other hand, if you disagree with the IRS, you’ll need to take the following steps:

• Provide a written explanation of your disagreement

• Include supporting documents to back your claims

• Attach a copy of the IRS notice

• Include proof of timely mailing if sending your response by mail

Your advisor will assist in drafting a clear response, collecting the right evidence, and ensuring your submission meets the IRS deadline.

Do Not Send Original Documents

Always send copies when responding to an IRS notice. Originals should be kept in your records.

Be Aware of IRS Scams

The IRS does not:

• Call you without notice, mailed first
• Demand gift cards
• Demand immediate payment without appeal options
• Threatened arrest over the phone

Always verify the legitimacy of a notice. Your advisor can confirm whether a letter is authentic.

Understand That IRS Notices Are Often Automated

Many notices are triggered by:

• Employer reporting mismatches
• Platform income reporting
• 1099-K digital payment reporting
• Bank interest reporting
• CPA mis-entry
• Math errors
• Estimated tax discrepancies

These are usually fixable with proper documentation.

Common Reasons People Receive IRS Notices

• Incorrect Social Security numbers
• Math errors
• Missing income
• Incorrect credit amounts
• Self-employment reporting issues
• Misclassified rental income
• Overreported or underreported deductions
• Incorrect filing status

These issues occur frequently and can be corrected with guidance.

How AE Tax Advisors Helps With IRS Notices

AE Tax Advisors handles notices for clients by:

• Reviewing and interpreting the notice
• Comparing IRS data with your return
• Gathering documentation
• Drafting responses
• Communicating with the IRS when needed
• Correcting mistakes through amended returns
• Protecting you from penalties
• Ensuring compliance going forward

The goal is to resolve notices quickly and reduce stress.

Final Thoughts

Receiving an IRS notice can feel intimidating, but most notices are manageable with clear documentation and a proper response. Understanding what the notice means, what the IRS is asking for, and how to answer gives you control over the situation. With an experienced advisor, the process becomes far less stressful and far more organized.

For high-income individuals who want a strategic partner steering their tax planning, more information is available at AETaxAdvisors.com.

Disclaimer: This content is provided for informational purposes only and should not be considered financial, investment, or legal advice. It is not a substitute for professional guidance. Always consult with a qualified financial advisor, legal expert, or other relevant professional before making any financial or investment decisions.