This week we continue our look at common IRS letters and notices. Letter 525, sometimes called the 30-day letter, is a notice of proposed adjustment to your return. It is called a 30-day letter because you only have a 30-day window to respond to it. While each Letter 525 will be unique to a taxpayer, let’s take a look at why you would receive one and what your options are to respond.

Why am I Receiving This?

The IRS will issue a Letter 525 at the end of an audit when they have a mistake or error and propose an adjustment to your return. This adjustment could be either positive or negative for you. If the IRS thinks you paid too much, then you may receive a refund. But, more commonly, the IRS will want you to pay more in taxes due to the adjustment. You should review the explanation of the change to make sure that you agree with the reasoning and the amount of the adjustment.

It is essential to point out that this letter only comes at the end of an audit. You should have received some correspondence before this letter, explaining what is being audited and giving you a chance to respond before making a determination. Throughout the process, the IRS will often correspond with you through Information Document Requests requesting information and documents to support what has been put on the return. A Letter 525 means that the audit is over and a determination about your return has been made.

What should I do?

First, you need to review the Letter to determine what the proposed change is and why it is being made. Will the adjustment mean that you receive money back? Or are you now supposed to pay more? Was the adjustment due to new information like a corrected W-2? Or is it from the IRS not agreeing with your position on an issue, such as taking a deduction for your side hustle?

Additionally, you should double-check the amount that is changing. Even if you agree that the amount should change, you may not agree with the new calculation. Check that the IRS has made the correct changes and correctly calculated the new amount owed correctly. There are often minor errors that result in significant changes in the final amount.

If you have reviewed the Letter and agree with the final amount, then you can sign the form and mail it back to the address listed on the Letter. You will then either receive a refund or need to pay the additional amount owed.

If you do not agree with either the position or the amount owed, you may be able to speak with the contact or office listed to resolve the issue. More likely, you will need to request an appeal of the audit and the determination. There will be information included in the Letter on how to request an appeal, but it must be done within that 30-day window.

If you need help understanding your Letter 525 or how to respond, contact us today to discuss your next steps.