4 IRS notices: How to Handle Them

Three words that strike fear into every American: Internal Revenue Service. 

Receiving a notice from the IRS conjures images of going to jail, losing your house, and the Monopoly guy telling you that you can't pass Go or collect $200. 

But the truth is 99 percent of the time, IRS notices are harmless. 

And since that concept is difficult to wrap your brain around and even more difficult to remember during your state of panic upon receiving an IRS notice, we wanted to give you a set of tools to break out when you're breaking down. 

As a payroll partner, Whirks has a long-standing relationship with the IRS. We've received our fair share of messages from the IRS, the state departments of revenue, and the Department of Labor as a business. Governments love to distribute notices, and it's one of the few things they seem to be any good at. 

We've successfully worked with the IRS and hundreds of small businesses to alleviate fears and resolve issues. Most of the time, we simply send the IRS a copy of something we've already sent or proof that taxes were paid. And since we've cracked the code, we wanted to share our wisdom with fellow business owners. 

In this article, we will explain the main types of notices you're likely to receive, the reality behind the messages, and how your payroll provider should respond. (After reading this, you'll be able to laugh in the face of the IRS. Okay, no. Don't do that!) We want you to stay calm upon seeing an IRS notice, and confident knowing that your payroll provider has got your back. 

4 Common business IRS notices and how you and your payroll provider should respond

So, what’s the first thing you should do when you receive your IRS notice: 

1. Breathe
2. Sit down (lie down if necessary)
3. Open the envelope
4. Read the notice
5. No, really read it. Don't just scan it for scary words like bankruptcy, jail, apocalypse. 

Once your fear has subsided and your blood pressure returned to normal, you should both contact your payroll provider about the notice, and you should send them a copy of the actual statement. That's all you, as a business owner, have to do. 

Any payroll partner worth their salt will handle your IRS notices from receipt to resolution. 

If your payroll partner is classified by the IRS as a Reporting Agent, the IRS will send both you and your provider the same notice. Regardless of your type of provider, go ahead and send them a copy. It's better to over-communicate than under-communicate. 

Your payroll processing company should confirm receipt of your notice, inform you of its probable cause, and update you on its resolution. If they made a mistake and the IRS levies a penalty, the company would work to abate the penalty or pay it. 

Now let’s dive into the four IRS notices you might have received and what to do.

Missing paperwork

What does this notice mean:

When the IRS asks for additional paperwork or states that they are missing Schedule B (or something similar) from your most recent tax return, they mean they lost one of the three pieces of paper you mailed them. 

How to respond:

These notices are typically resolved when your payroll company resends the missing page or pages. Debating receipt with the IRS is futile. Since proper record keeping is a standard function of payroll providers, they will have copies of all tax documents and easily correct this issue. 

Unpaid taxes

What does this notice mean:

This one is the scariest. The most likely reason you received this notice is the lack of communication within the IRS itself. 

For example, your payroll provider recently filed and paid your second quarter federal employer taxes, consisting of federal income tax, Federal Insurance Contributions Act tax (FICA, better known as the social security tax), and medicare tax. 

If your notice says you have unpaid taxes, it's likely that the funds have been misapplied. I know that sounds bad, but it happens more often than you'd like to think at the IRS (which also doesn't make you feel better). Unfortunately due to outdated technology, humans (which are prone to error) manually enter tax return information. While none of this is great news about your tax dollars or the federal government, it does explain why you might receive an unpaid tax notice from the IRS, and why you shouldn't worry too much about it. 

It's a lot like receiving a letter stating your credit card payment is past due, but you mailed it in a week ago. The department or computer program that sends out notices probably hasn't caught up with the accounts receivable department. 

How to respond:

Your payroll provider will notify you as soon as your taxes have been paid. Most likely, they will provide a report detailing the payment amounts and distribution of funds to specific tax divisions (income tax, social security, medicare, and you will have round-the-clock access to this report. 

So if you get a notice claiming you have unpaid taxes, you should be able to verify whether or not that's true quickly. Again, most of these notices are sent due to a lack of communication within the IRS. Your payroll company can prove a confirmation of payment to the IRS, especially if funds were paid electronically. 

While this notice causes the most panic, it is easy to verify and correct. And if you suspect that your provider hasn't paid the taxes they reported paying, contact the IRS immediately to report potential fraud. 

"Employers who believe that a bill or notice received is a result of a problem with their payroll service provider should contact the IRS as soon as possible by calling the number on the bill, writing to the IRS office that sent the bill, calling 800-829-4933 or visiting a local IRS office."

Incorrect or lack of information

What does this notice mean:

These notices are most likely accurate but still innocuous. With the barrage of forms required by the IRS, forgetting to check a box or write your employer identification number in all three boxes has a high probability of happening. You might even write a nine instead of a four in your SSN. Mistakes happen, and they are fixable. 

With new forms regularly being created, it's easy to miss something. But it's not the end of the world, nor will the IRS chain and lock the doors to your business for it. However,  it does often feel that way. 

How to respond:

Review your copy of the tax return in question for possible mistakes, and then double check with your payroll partner to correct errors or find out if it was a simple unchecked box situation. Regardless of the reason, your payroll provider will resolve the issue. They may have to file an amended return in a worst-case scenario. 

Change in IRS process

What does this notice mean:

The IRS will send you a notification with every rule change, law amendment, or code update. Governments are big on having a paper trail, and the IRS takes that literally. And most of these notices have little to no effect on your business, but some rule demands that letters be sent to all potentially affected taxpayers. 

How to respond:

These notifications should be taken at face value. They are simply a heads up that a change has been made within their organization. It's unlikely the change will impact your life other than that jolt you got when you saw the return address was Internal Revenue Service. 

Contact your payroll service provider if you have any questions about a change in IRS process notification or any document they send you. You pay them to deal with the IRS, so you don't have to. 

IRS Business Notices - Mostly Harmless

There's no doubt that anything other than a refund from the IRS is alarming. 

The good news, and the mantra you should repeat upon receiving an IRS notice, is that if you have a payroll partner, you don't have much to worry about. 

The IRS is a federal government agency, which means it's flawed, rife with miscommunication, and covered in red tape. There are mailed 2020 tax returns, which have yet to be opened, sitting in IRS offices. Keep this in mind when you open your mailbox and find the Internal Revenue Service stamped on an envelope. 

Having filed federal taxes as a small business and for small businesses for years, we at Whirks can assure you that 99 percent of all IRS notices are insignificant or irrelevant. 

Running a business isn't easy, and the IRS only adds to the difficulty. We get it. We've been there. And we've successfully helped hundreds of business owners rest easy knowing that their payroll provider will take care of the notice should it be the one percent that requires action. If your current payroll company isn't giving you that peace of mind, book fifteen minutes with one of our team members to see if Whirks is a better fit. 

So when you inevitably receive a notice from the Internal Revenue Service, take a deep breath, send a copy to your payroll partner, and move forward with your day.