Navigating IRS or FTB Notices: What to Do When You Get One

Introduction

Getting a letter from the IRS or California’s Franchise Tax Board (FTB) can be stressful, but it doesn’t always mean there’s a serious problem. In fact, millions of taxpayers receive notices every year, and most are routine matters like missing information, minor corrections, or income verification.

Notices are especially common in the months following tax season as the IRS and FTB begin matching your tax return with data reported by employers, banks, and other sources. If something doesn’t align, a notice is automatically generated.

While it’s important to take tax notices seriously, the key is to stay calm and take action promptly. Many issues can be resolved quickly if addressed on time, but ignoring a notice can lead to added penalties, interest, or limited options for resolution.

Tax professionals, like those at Prado Tax Services in San Leandro, regularly help taxpayers understand and respond to these notices correctly, ensuring they don’t face the IRS or FTB alone or uninformed.

Why Did You Receive a Tax Notice?

Tax notices from the IRS or California FTB can arrive for a variety of reasons. Most aren’t audits, they’re simply notifications that something on your return doesn’t match their records or that more information is needed.

Here are the most common reasons taxpayers receive notices:

1. Missing or Unreported Income

If an employer, client, or financial institution reports income (such as a W-2 or 1099) that wasn’t included on your return, the IRS or FTB may send a notice to reconcile the difference. This is one of the most common triggers, especially for gig workers or those with multiple income sources.

2. Math Errors or Calculation Adjustments

Sometimes, the IRS or FTB corrects simple errors in addition, subtraction, or credit calculations. These changes are usually reflected in an updated balance or refund amount.

3. Verification of Credits or Deductions

You may be asked to verify eligibility for certain tax credits or deductions, like the Earned Income Credit, Child Tax Credit, or Head of Household status. This is especially common if supporting documents were not filed.

4. Identity Verification

If the IRS or FTB suspects identity theft or sees suspicious activity (like a duplicate return), they may send a notice asking you to verify your identity before processing your return or refund.

5. Balance Due or Refund Adjustment

If your return resulted in a miscalculated refund or tax owed, a notice may outline the difference and provide payment instructions or options for disputing it.

6. Request for Supporting Documents

Some notices request backup documentation for income, expenses, or dependents. These are not audits, but they should be taken seriously and responded to with care.

7. California-Specific Issues (FTB)

The California Franchise Tax Board may issue notices related to residency questions, underreported state income, use tax, or health insurance mandates. State-level notices often follow IRS adjustments but can also arise independently.

A notice doesn’t always mean you did something wrong, but it does mean you need to pay attention. In most cases, responding properly and on time can resolve the issue without further action.

How to Read and Understand the Notice

Every tax notice contains important details, and understanding those details is the first step to resolving the issue. Don’t toss it aside or assume the worst. Instead, take a few minutes to go through it line by line.

1. Identify the Notice Number

Each IRS or FTB notice includes a unique number at the top right or left corner, for example, IRS CP2000, LT11, or FTB 4600. This number tells you what the notice is about. You can search it online for more context or ask a tax professional for clarification.

2. Check the Tax Year

Most notices will state which tax year is being referenced. Make sure you’re looking at the correct return before taking any action.

3. Understand What’s Being Adjusted or Requested

Notices usually include a summary section explaining:

• What was reported vs. what they received
• Any proposed changes to your return
• The reason for the change
• Whether you need to send documents, make a payment, or take further action

Some notices may show a “proposed amount due”, this is not a final bill unless you agree with it or fail to respond by the deadline.

4. Look for Response Deadlines

Most notices give you 30 days from the date on the letter to respond. Some allow longer, but it’s best to act within that initial window. Ignoring the deadline can lead to penalties, interest, or fewer resolution options.

5. Review Contact Options

The notice will list a phone number and sometimes a secure online option for responding. If you’re not sure what to do, speaking with a tax professional before calling the IRS or FTB directly can help you prepare and avoid unnecessary complications.

Understanding what your notice is saying, and what it’s not, is key to resolving it efficiently. 

Do’s and Don’ts When You Receive a Notice

Getting a tax notice can be unsettling, but how you respond makes all the difference. Here are some clear do’s and don’ts to guide your next steps:

DOs:

DO: Read the Notice Carefully

Don’t skim. Read every line of the notice, including the details about why it was sent, what it’s asking for, and what the deadline is. Each section may contain important instructions that affect how you should respond.

DO: Compare It with Your Tax Return

Match the information in the notice with a copy of your filed return. Look for:

• Income amounts that don’t match
• Credits or deductions being questioned
• Filing status or dependent claims being reviewed

This helps you verify whether the notice is accurate or if there’s been a mistake.

DO: Gather Any Supporting Documents

If the notice refers to missing or unverified information, gather documents such as:

• W-2s, 1099s, or 1098s
• Receipts or records of deductions
• Proof of dependents (e.g., birth certificates, school or medical records)
• Bank or brokerage statements

Having these ready speeds up the response process.

DO: Respond Promptly

Most notices allow 30 days to respond. Waiting too long can result in penalties, interest, or losing the opportunity to appeal. If you need more time, you may be able to request an extension, but don’t assume it’s automatic.

DO: Keep a Copy of Everything

Make and keep copies of the notice, your response, and any documents you send. Always mail responses using certified mail with tracking if replying by post.

DON’Ts:

DON’T: Ignore the Notice

Even if you think it’s a mistake or you can’t pay, ignoring the notice only makes things worse. Penalties and interest can add up quickly, and in some cases, collection efforts may begin.

DON’T: Panic or Rush to Pay

Not all notices require payment. Sometimes, the IRS or FTB is simply requesting clarification or documentation. Only pay once you’ve verified the notice is correct and you understand what’s owed.

DON’T: Call Without Preparing

If the notice includes a phone number and you plan to call, have your documents ready and give yourself time. Hold times can be long, and you’ll need to verify your identity before they can help.

DON’T: Fall for Scams

Neither the IRS nor the FTB will initiate contact by phone, email, or text. If you receive an unexpected call or message demanding payment, it’s likely a scam. Always refer back to the official mailed notice.

Handled correctly, most notices can be resolved without much stress.

Responding to the IRS or FTB

Once you understand the notice and confirm what it’s asking, the next step is to respond clearly, completely, and within the deadline. Your response will depend on whether you agree or disagree with the notice.

1. If You Agree with the Notice

If the notice is correct and you agree with the changes:

• Follow the instructions for confirming or signing the notice (some may require a signed response).
• If a payment is due, submit it by the date stated using the method listed, check, online payment, or setting up a payment plan.
• Keep copies of all documents, payment confirmations, and the notice itself.

Tip: Even if you agree, it’s still a good idea to keep your tax professional informed, especially if this could affect next year’s filing or estimated payments.

2. If You Disagree with the Notice

If the IRS or FTB made an error or overlooked information:

• Draft a clear written explanation stating why you disagree.
• Include copies (not originals) of any documents that support your position.
• Use the return envelope provided or follow the mailing address listed in the notice, different notices may go to different IRS/FTB departments.
• If you’re unsure how to word your response, consider having a professional review it before sending.

3. When to Amend Your Return

If the notice points out an actual mistake in your original return, for example, income you forgot to include or deductions that were incorrectly claimed, you may need to file an amended return:

• Use IRS Form 1040-X for federal returns.
• Use California Form 540X (or correct the online FTB return) for state filings.
• Be sure to attach any relevant documents, and explain clearly what’s being amended and why.

A tax professional can help ensure amended returns are prepared accurately and that they address the notice directly.

4. Disputes and Appeals

If you strongly disagree with a proposed change, and have supporting documents, you may have the right to:

• Request a reconsideration (common with CP2000 notices)
• File a formal appeal through the IRS Office of Appeals or FTB’s Protest Process

These options have specific rules and timelines, so it’s best to act early and consult a professional if needed.

What If You Owe Tax and Can’t Pay?

Owing money to the IRS or FTB can feel overwhelming, especially if you weren’t expecting it. But the good news is: you have options. Both agencies offer structured payment plans and relief programs designed to help taxpayers settle what they owe without additional hardship.

1. IRS Payment Options

1. Pay in Full (Best Option if Possible)
   If you can pay the balance in full by the due date listed in the notice, do so online at https://www.irs.gov/payments, by check, or through your IRS Online Account.
2. Short-Term Payment Plan (180 Days or Less)
   If you need a little time, the IRS offers short-term plans with no setup fee. You can apply online if your balance is under $100,000.
3. Long-Term Installment Agreement
   For larger amounts or longer timeframes, apply for a monthly installment plan. A setup fee applies, but automatic withdrawals can reduce the cost. Make sure payments are consistent to avoid defaulting.
4. Offer in Compromise
   If you truly can’t afford to pay the full amount, you may qualify to settle your tax debt for less. These are difficult to get approved and require detailed financial documentation.
5. Temporarily Delay Collection
   If you’re facing serious financial hardship, the IRS may mark your account as: “Currently Not Collectible.” This delays collection actions, but interest continues to accrue.

2. California FTB Payment Options

1. Pay Online or by Check
   You can pay directly at https://www.ftb.ca.gov/pay/ or by mail with the payment voucher provided in your notice.
2. Installment Agreement (Up to 60 Months)
   If your balance is under $25,000 and you can pay it off in five years or less, you can request a payment plan online or by phone.
3. Financial Hardship Assistance
   FTB may offer reduced or delayed payments if you can prove financial difficulty. You’ll need to provide income, expense, and asset documentation.

3. Penalty Relief

Both the IRS and FTB offer First-Time Penalty Abatement if you have a good compliance history. You may also qualify for relief due to:

• Natural disasters
• Serious illness or death in the family
• Other reasonable cause

Requesting relief usually requires a written explanation and sometimes supporting documents.

Owing taxes is manageable, as long as you communicate early and choose the right resolution path. 

When to Get Professional Help

Not every notice requires a tax expert, but when the stakes are high, or the details are unclear, having a professional on your side can save you time, money, and stress. Knowing when to seek help is just as important as knowing how to respond.