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July 5, 20258 min readTax Resolution

Got an IRS Notice? Don't Panic - Here's What to Do

Seeing an IRS notice in your mailbox can ruin your day, but ignoring it makes everything worse. Most notices are fixable if you act quickly. We've resolved over $8.2M in tax debt for California clients.

Valoria Consulting Team

Time is Critical

The key to resolving IRS notices successfully is responding immediately, gathering your documents, and getting professional help. Whether it's a payment plan, offer in compromise, or penalty abatement, we know exactly how to handle the IRS and protect your assets.

That envelope from the IRS just hit your mailbox, and your heart is racing. We get it - an IRS notice can feel like a financial death sentence. But here's what 30+ years of tax resolution experience has taught us: most IRS notices are completely resolvable when you respond properly and quickly.

The worst thing you can do is ignore it and hope it goes away. IRS problems only get bigger with time. But the good news? We've developed a proven system for handling every type of IRS notice, and we'll walk you through it step by step.

1Don't Panic - Read the Notice Carefully

Your first instinct might be to stuff the notice in a drawer, but that's the worst thing you can do. Take a deep breath and read the entire notice. The IRS isn't trying to trick you - they're required to explain the issue clearly.

What to Look For:

  • Notice number: Usually in the upper right corner (CP14, CP501, etc.)
  • Tax period: Which year or quarter is affected
  • Amount owed: Total balance including penalties and interest
  • Response deadline: How long you have to respond
  • Specific issue: What the IRS thinks is wrong

Pro Tip:

Keep the original notice in a safe place and make copies for your records. You'll need the notice number when communicating with the IRS or your tax professional.

2Gather Your Documentation Immediately

Before you can respond effectively, you need to understand what happened. Gather all relevant documents for the tax period mentioned in the notice.

Essential Documents:

  • Original tax return (as filed)
  • All W-2s, 1099s, and other income documents
  • Bank statements and financial records
  • Receipts for claimed deductions
  • Previous IRS correspondence
  • Payment records and cancelled checks

Business Owners Also Need:

  • Profit & Loss statements
  • General ledger or QuickBooks file
  • Payroll records and Form 941s
  • Sales tax returns (if applicable)
  • Business expense receipts
  • Depreciation schedules

3Determine If the IRS is Right or Wrong

Sometimes the IRS is wrong. Computer errors, mismatched documents, and processing delays can create incorrect notices. Other times, they're absolutely right and you owe the money.

If the IRS is Wrong:

  • • Gather proof of your position
  • • Send a written response with documentation
  • • Request penalty and interest removal
  • • Follow up to ensure resolution

If the IRS is Right:

  • • Don't ignore the debt
  • • Explore payment options immediately
  • • Consider penalty abatement requests
  • • Get professional help for large amounts

Warning:

Even if you disagree with the notice, you must respond by the deadline. Silence is treated as agreement, and the IRS will proceed with collection actions.

4Choose Your Response Strategy

Your response strategy depends on your specific situation. Here are the most common options and when to use them:

🏠 Payment Plan (Installment Agreement)

Best for: Debts under $50,000 that you can pay off in 6 years or less.

  • • Monthly payments as low as $25
  • • Stops most collection actions
  • • Interest and penalties continue to accrue
  • • Can often be set up online

💰 Offer in Compromise

Best for: Large debts when you can't pay the full amount or it would cause financial hardship.

  • • Settle debt for less than owed
  • • Requires detailed financial disclosure
  • • 6-24 month process
  • • Only 40% approval rate (professional help recommended)

⏸️ Currently Not Collectible Status

Best for: Financial hardship situations where you can't afford any payment.

  • • Temporarily stops collection
  • • Interest and penalties still accrue
  • • IRS reviews your status annually
  • • Good option while circumstances improve

📝 Penalty Abatement

Best for: First-time penalties or situations with reasonable cause.

  • • Can remove failure-to-file and failure-to-pay penalties
  • • Requires clean compliance history or reasonable cause
  • • Can save thousands in penalties
  • • Often combined with payment plans

5Get Professional Help for Complex Cases

While simple notices can often be handled yourself, complex cases require professional expertise. The IRS has teams of attorneys and agents - shouldn't you?

When to Call a Professional:

  • Tax debt over $25,000
  • Business tax problems or payroll issues
  • Multiple years of unfiled returns
  • Asset seizure threats or wage garnishments
  • Audit notices or examination requests
  • Complex financial situations

Our Track Record:

We've resolved over $8.2M in tax debt for California clients with a 94% success rate. Our team includes CPAs, enrolled agents, and former IRS employees who know exactly how to negotiate with the IRS.

Common Mistakes That Make Things Worse

  • Ignoring the notice: Problems compound with time
  • Calling the IRS directly: Everything you say can be used against you
  • Partial payments without agreement: Doesn't stop collection actions
  • Borrowing against retirement funds: Creates new tax problems
  • Hiding assets or income: Can result in criminal charges
  • Using tax resolution companies: Many are scams with poor track records

Real Success Stories

Restaurant Owner - Los Angeles

$280,000 penalty reduced to $95,000

Payroll tax issue resolved with installment agreement

Tech Consultant - San Diego

$65,000 debt settled for $15,000

Offer in compromise based on financial hardship

Ready to Resolve Your Tax Issues?

Every success story starts with a free consultation. Let our licensed team of CPAs, enrolled agents, and tax professionals analyze your situation and create a custom resolution strategy.