Feb. 6, 2025

How Do You Handle a Tax Notice Wisely?

Got a Tax Notice? Now What?

Receiving a letter from the IRS can be unsettling, but don't worry! It's not uncommon, and as Christians, we can face this challenge with faith and wisdom, knowing that God is our provider and guide. This blog post will offer practical steps to take and biblical principles to consider when dealing with a tax notice. How Do You Handle a Tax Notice Wisely? Read on to find out.

Check out the full podcast episode:

Why Did I Receive a Tax Notice?

The IRS sends notices for various reasons, many of which are simply requests for clarification or missing information. Here's a breakdown of common reasons, categorized for clarity: ¹

Errors and Discrepancies

Refund Adjustments: The IRS may adjust your refund due to errors or miscalculations on your tax return.
Return Errors: Notices may be triggered by inconsistencies in your tax return, such as mismatched figures or unclear information.
Changes to Your Return: The IRS might make changes to your return based on information received from third parties, like your employer or bank.

Outstanding Balances

Balance Due: You might have an outstanding balance from a previous tax year. This could be due to underpayment or penalties for late filing.

Information Requests

Information Verification: The IRS might require additional information to verify your identity or eligibility for certain deductions or credits.
Processing Delays: Sometimes, processing delays can result in a tax notice.

It's important to remember that receiving a tax notice is not necessarily an indication of wrongdoing. It's often a routine procedure to ensure accurate tax reporting. I remember a friend who panicked when she received a notice, thinking she was in trouble with the IRS. It turned out to be a simple request for clarification about a charitable donation she had claimed. Once she provided the necessary documentation, the issue was quickly resolved.

Understanding Different Types of Tax Notices

To better understand your specific situation, it's helpful to be aware of the different types of tax notices. Here are a few common ones: ⁵

CP14: This is a tax collection notice indicating an outstanding balance. This could be due to underpaid taxes or a discrepancy between your reported income and the information the IRS received⁶.
CP2000: This notice is issued when the IRS finds a mismatch between the information on your tax return and the information they received from other sources, such as your employer or bank. It's not an audit notice, but it requires a response to clarify the discrepancy⁷.
CP501: This is a reminder notice about an unpaid tax balance. It's essential to address this promptly to avoid further penalties and collection actions⁵.
CP75: This is an audit notice, often sent when the IRS needs more information to verify your eligibility for certain tax credits, such as the Earned Income Credit⁵.
CP90: This is a Notice of Intent to Levy, meaning the IRS intends to seize your assets to satisfy your tax debt if you don't respond within 30 days. It's crucial to take immediate action if you receive this notice⁵.

What to Do When You Get a Tax Notice

When that envelope arrives, take a deep breath and remember that God is in control. Here are some practical steps to take: ³

Read the Notice Carefully: Don't panic! Carefully review the notice to understand the reason for the contact and the specific instructions provided.
Identify the Tax Year: Ensure the notice pertains to the correct tax year.
Gather Your Records: Collect all relevant documents, including your tax return for the specified year, any supporting documents like W-2s and 1099s, and any correspondence related to the notice.
Verify the Information: Compare the information in the notice with your own records. If you agree with the notice, follow the instructions to make any necessary corrections or payments.
Respond Promptly: If the notice requires a response, do so within the specified timeframe to avoid penalties or further complications.

How to Avoid Tax Notices in the Future

While tax notices are sometimes unavoidable, proactive steps can minimize their occurrence. Here are some tips: ³

Maintain Accurate Records: Keep thorough and organized financial records throughout the year. This includes income statements, expense receipts, and any other relevant documents.
Understand Your Tax Obligations: Stay informed about current tax laws and regulations. Tax laws can change frequently, so it's essential to stay updated.
File on Time: File your tax returns accurately and on time, even if you can't pay the full amount due. Filing late can result in penalties and interest charges.
Pay Taxes Throughout the Year: If you're self-employed or have significant income not subject to withholding, make estimated tax payments throughout the year. This can help avoid a large tax bill at the end of the year.
Review Your Withholding: Ensure your employer is withholding the correct amount from your paycheck. You can adjust your withholding by submitting a new Form W-4 to your employer.
Seek Professional Advice: Consult a tax professional for guidance on complex tax situations or if you have questions about your tax obligations. A tax professional can help you minimize your tax liability and ensure compliance with tax laws.

By taking these proactive steps, you can reduce the likelihood of receiving tax notices in the future and maintain a sense of peace and order in your financial life. This aligns with the biblical principle of stewardship, which calls us to manage our resources responsibly and with wisdom²⁰.

Biblical Principles for Financial Challenges

The Bible offers wisdom and comfort when facing financial challenges like tax notices. Here are some relevant verses and principles: ²⁰

Trust in God's Provision: Philippians 4:19 reminds us that "God will supply every need of yours according to his riches in glory in Christ Jesus." This verse assures us that even when facing financial difficulties, we can trust in God's faithfulness to provide for our needs.
Seek God's Wisdom: Proverbs 3:5-6 encourages us to "Trust in the Lord with all your heart, and do not lean on your own understanding. In all your ways acknowledge him, and he will make straight your paths." When dealing with a tax notice, it's essential to seek God's guidance and wisdom in every step of the process.
Practice Contentment: Hebrews 13:5 reminds us to "Keep your life free from the love of money, and be content with what you have, for he has said, 'I will never leave you nor forsake you.'" Contentment doesn't mean complacency, but rather finding peace and satisfaction in God's provision, regardless of our financial circumstances.
Give Generously: 2 Corinthians 9:7 teaches us that "God loves a cheerful giver." Even amidst financial challenges, giving can be a powerful expression of faith and trust in God's provision. It reminds us that our resources ultimately belong to God, and we are called to be generous stewards of His blessings.
Seek Wise Counsel: Proverbs 15:22 says, "Without counsel plans fail, but with many advisers they succeed." Don't hesitate to seek advice from trusted professionals or mentors who can offer guidance and support.

When facing a tax notice, it's easy to feel overwhelmed and anxious. But as Christians, we can find peace and strength in God's promises. Philippians 4:19 reminds us that God is our provider, and He will meet our needs according to His glorious riches in Christ Jesus²³. This doesn't mean we won't face challenges, but it does mean we can face them with confidence, knowing that God is with us every step of the way.

Stories of Overcoming Tax Challenges

Many people have successfully navigated tax notices and come out stronger on the other side. Here are a few examples: ³¹

Pastor Charles: Faced a $206,000 tax liability due to errors made by his CPA. With the help of tax professionals, he settled his debt for only $650³⁴.
A Military Family: Overcame tax debt after a permanent job loss due to COVID-19³⁴.
A Couple with a Large Balance Due: Resolved a significant tax liability and had a hold on their passports removed with the assistance of the Taxpayer Advocate Service⁴⁰.
An Individual with Unfiled Returns: Hadn't filed taxes in over a decade and owed a significant amount. With professional help, they filed their back taxes, determined the amount owed, and negotiated a repayment plan³³.
A Business Owner with Payroll Tax Issues: Faced a potential levy on their bank account due to unfiled taxes. By filing back taxes and working with a tax professional, they significantly reduced their tax liability and established a plan for ongoing compliance³³.

These stories, and many others, demonstrate that with perseverance, wise counsel, and faith in God, we can overcome financial challenges.

Beware of Tax Scams

Unfortunately, scammers often take advantage of taxpayers' anxieties about tax notices. It's crucial to be aware of potential scams and how to avoid them¹.

Here are some red flags to watch out for:

Unexpected Contact: The IRS typically initiates contact through official mail. Be wary of unexpected phone calls, emails, or text messages claiming to be from the IRS.
Aggressive Threats: Scammers often use scare tactics and threats of legal action or arrest to intimidate taxpayers. The IRS generally communicates in a professional and courteous manner.
Requests for Personal Information: The IRS will never ask for personal or financial information over the phone or email.
Suspicious Payment Methods: Be cautious of requests to pay taxes using gift cards, prepaid debit cards, or wire transfers. The IRS offers secure payment options through their website or authorized payment processors.

If you receive a notice that seems suspicious, don't respond. Instead, contact the IRS directly at the official phone number listed on their website (IRS.gov) to verify its legitimacy.

Resources for Tax Notice Help

If you need assistance with a tax notice, here are some valuable resources: ⁴²

Resource	Description	Contact Information
IRS Website (IRS.gov)	Provides information on various tax topics, including notices and letters, payment options, and how to resolve tax disputes.	www.irs.gov
Taxpayer Advocate Service (TAS)	Offers free assistance to taxpayers who are experiencing difficulties with the IRS.	www.taxpayeradvocate.irs.gov
Low Income Taxpayer Clinics (LITCs)	Provide free or low-cost representation to taxpayers who cannot afford professional help.	www.taxpayeradvocate.irs.gov/litc/
Enrolled Agents	Federally-authorized tax practitioners who can represent taxpayers before the IRS.	www.irs.gov/tax-professionals/enrolled-agents
Certified Public Accountants (CPAs)	Licensed professionals who provide accounting and tax services.	www.aicpa.org
Tax Attorneys	Attorneys specializing in tax law who can provide legal advice and representation.	www.americanbar.org
State Tax Agencies	Can provide assistance with state tax issues.	Contact information varies by state.

If you're unsure how to proceed or disagree with the notice, consider seeking help from a qualified tax professional. They can provide guidance and represent you before the IRS. The IRS also offers options to help taxpayers who are struggling to pay a tax bill⁶.

Conclusion

Facing a tax notice can be daunting, but it's not an insurmountable challenge. By approaching the situation with a clear mind, seeking professional guidance when needed, and trusting in God's provision, you can navigate this process successfully. Remember that God is our ultimate provider and source of wisdom. Lean on Him, seek wise counsel, and have faith that you can overcome this financial hurdle.

As Christians, we can face tax notices with confidence, knowing that God is our provider and guide. By seeking His wisdom, trusting in His provision, and practicing contentment, we can navigate this challenge with peace and overcome this financial hurdle.

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Ralph V. Estep, Jr.

Christian Financial Consulting

Ralph V. Estep, Jr. is a highly accomplished professional with a diverse background in finance, accounting, technology, and entrepreneurship. As the principal at Saggio Management Group, Inc., he has demonstrated exceptional leadership and expertise in various roles throughout his career.

Ralph's educational journey began at St. Mark's High School in Newark, Delaware before attending the University of Nebraska where he was an esteemed member of the Cornhusker Marching Band and had the privilege of performing at the Florida Citrus Bowl in Orlando.

Continuing his pursuit of knowledge and excellence, Ralph earned a Bachelor of Science Degree in Accounting from the University of Delaware. He further expanded his academic achievements by obtaining a Master's in Business Administration from Wilmington University.

Throughout his professional journey, Ralph has been recognized for his outstanding accomplishments and commitment to excellence. He is a member of prestigious organizations such as the Golden Key National Honor Society and Beta Gamma Sigma International Business Honor Society.

With an extensive range of professional designations including Licensed Public Accountant (LPA), Accredited Business Accountant (ABA), Accredited Tax Advisor (ATA), Accredited Tax Preparer (ATP), and Internal Revenue Service Registered Tax Preparer (RTRP), Ralph possesses comprehensive expertise in tax preparation and financial management.

Beyond his impressive qualifications, Ralph has actively engaged with various community programs as bo… Read More

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