Everything There Is You Need to Know about the IRS matching notice

Millions of American taxpayers every year receive an unexpected mail from the IRS.

There are two possibilities from that email: it is a simple matter that can be dealt with easily and a very confusing notice or even an incorrect one. The best thing you can do is to avoid receiving one. Below are the things that will work on your favor to increase your chance of avoiding an IRS notice.

1. Amounts should be reported on the correct line

Many of the IRS notices (the CP2000 Underreporter notice for example) are a result of a too-precise matching system since it can be computer-generated. There is a possibility that the IRS system may still generate a notice even if you report all income on your return but it was reported incorrectly. 

For instance, a non-employee compensation belongs to Schedule C Profit and Loss from a Business but taxpayers commonly report it from 1099-MISC as “Other Income”. 

Make sure that your tax return amounts are reported correctly and are in the corresponding line item. You can check the IRS Publication 525 if you need more information. 

2. Income amounts should not be grouped

Simplifying your tax return and saving time for yourself through combining amounts is indeed tempting. But this is not how the IRS will receive the report of information. Since the IRS systems are looking for an exact match. This kind of way may only trigger an IRS notice. You have to diligently enter your W-2 separately in your tax software if perhaps you worked several jobs this year. 

For example, on your Form 1099-B, let’s say you have multiple stock trades. You can file it separately by either you will include each trade you had on Form 8949, or you will combine the trades on your Schedule D for each short-term or long-term category. Showing each trade that you had, include it in a separate attached spreadsheet. The information requested on Schedule D must be the same as what is in the spreadsheet. 

3. Corrected or delayed payer documents must be included

Make sure that you notate any correcting information statements, like a corrected W-2 or 1099 on the return (there’s a checkbox on the tax filing software). Amend your tax return if you receive a corrected statement after you filed a tax return and do not forget to include the corrected statement that you received as an attachment. 

A delayed or corrected information statement is what you may be waiting for in some cases. To avoid costly penalties and interest, you should file an extension and you should pay any tax you estimate you will owe by the filing date (remember that extension date and filing are different). 

You can also file an extension if you want to make sure you have gathered all of your information statements. To get your wage and income transcript, you should then contact the IRS in late July. It may contain documents you may not be aware of such as W-2s and 1099s. 

4. Include schedules and information statements if paper filing

With your return, your information statements (1099, W-2, etc.) and your Form 1040 Schedules (Schedule C, Schedule A, etc.) are sent together with it when you or your tax pro electronically file your return. However, you must attach copies of these documents when mailing your return. 

Even if copies of your receipts or other records are not necessary, you should still keep the copies in case you are going to be audited within three years.  

5. Do not net amounts

Unless the net amount is specifically requested, you should just use gross income amounts. Do not net amounts due or received from other sources against due or paid to them. 

The IRS will send you a notice if they think that you did not report all of your income. Call the IRS or take a closer look at your tax account if you don’t exactly understand why the IRS sent you a notice. Notices can be so confusing. And, to determine whether the IRS was correct, you can also get a tax pro. Tax pros can also help you respond with the information the IRS needs in order to correct the error.