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Resolving Retirement Plan IRS Letters: A Step-by-Step Guide

October 11, 2022

If you're a business owner, you may receive a letter from the IRS regarding your company’s retirement plan. Worse yet, the letter may even state that your company is being assessed due to a compliance failure.

Don’t worry. You have fundamental rights when interacting with the IRS. Below are actions that you can take to face the situation and move toward the best possible outcome.

Step 1: Read the Entire Letter Carefully

The IRS sends letters and notices for a variety of reasons and may not be referring to an audit or issue with your retirement plan. Read the letter carefully to understand the exact purpose of the letter or notice.

If there is an issue with your retirement plan, most letters deal with a specific issue and provide specific instructions on what to do. Read it several times to make sure you understand what they are asking for and what your next steps should be.

Step 2: Compare it With Your Retirement plan Tax/information Return

If a letter indicates a changed or corrected tax return, you should review the information and compare it with your original return and make sure to note any changes or differences between the two documents.

Step 3: Respond if You Disagree

It may be daunting to disagree with a notice from the IRS. As a business owner, you don’t want to escalate things out of proportion or have ongoing issues clog up your valuable time. However, the option to dispute the letter is available.

Here are the steps to take if you disagree with the notice regarding your employer-sponsored retirement plan:

  • Respond to the letter by addressing the part in which you do not agree in as clear detail as possible.
  • Include information and documents for the IRS to consider that support your response.
  • Mail the letter explaining why you disagree with the IRS’ assessment to the address listed at the bottom of the letter.
  • Allow at least 30 days for a response from the IRS.

In some letters and notices for retirement plans, there may be a specific response date, which requires any response to take place before a certain time. Responses must be made before that date to:

  • Minimize additional interest and penalty charges.
  • Preserve your appeal rights.

Step 4: Take Requested Action if You Agree

If you agree with the notice or letter, there’s no need to contact the IRS. Simply perform the requested action or make a payment according to the directions outlined by the letter or notice.

Step 5: Contact a Source of Retirement Planning Knowledge

If you are confused about what action the IRS is requesting, don’t hesitate to get in contact with us. We are here to prevent confusion and get your retirement plan compliant. We regularly assist clients by recommending how to respond to the IRS and preparing responses on your behalf. We understand your rights as a business owner and will help you navigate any compliance issues you may be facing.

Get in contact

Step 6: Contact the IRS if Necessary

For most letters, there’s no need to call the IRS or make an appointment at a taxpayer assistance center. If a call seems necessary, you can call the phone number in the upper right-hand corner of the letter. Make sure you have a copy of the tax return and letter on hand when calling.

Step 7: Keep the Letter

Keeping the letter allows you to have a written record of what happened. Plus, it’s just smart to keep copies of any IRS letters or notices you receive with your tax records in case anything pops up in the future.

Furthermore, it would be a good idea to also become familiar with your Taxpayer Bill of Rights. Among other things, these rights dictate that letters from the IRS must include:

  • Details about what the taxpayer owes, such as tax, interest, and penalties.
  • An explanation as to why the taxpayer owes the taxes.
  • Specific reasons why the IRS may have denied a refund claim.

Watch out For Scams

Some groups will impersonate the IRS and request you send them money through fake letters. Here are some things to keep in mind to avoid scams.

  • The IRS mostly uses U.S. mail to initiate contact but may on occasion call directly.
  • The IRS will not use email, phone, or communication over social media to initiate tax refunds or debts.
  • IRS agents will not ask for a specific form of payment or ask for credit card information over the phone.
  • The IRS will not threaten to bring local police, immigration officers, or other law enforcement agencies to arrest people for not paying.

If you are still unsure whether your communication with the IRS is a scam, contact the IRS directly to verify.

Prevent Further Issues

For employers sponsoring a retirement plan, it is important to keep specific information about your plan to prevent confusion, maintain your plan’s compliance, and have transparent documentation in case of an audit or compliance issue. Each plan has different documents that are pertinent to keep on file.

Article adapted from the IRS website

For more tips and information regarding retirement plans, contact us.

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