Tips for Responding to a State Tax Agency Notice

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You’ve done everything you were supposed to do. You've filed your tax return on time, and you've paid the tax due. It was accurate... or so you thought. But you've received a notice of taxes due from your state's tax authority. What to do? Taking some basic steps can help resolve the issue in the most positive way possible, and help is available.

A Notice of State Taxes Due is just one type of notice a state government tax authority may send you. California's Franchise Tax Board, for example, lists nearly three dozen notices it may send, covering everything from requests for additional documentation to confirming whether or not you will be itemizing deductions.

Act Fast

Don’t put that notice aside for later. Read it carefully and make sure you understand what it says. Respond to the notice immediately, because it will escalate into second and third notices and could eventually lead to a tax lien. The issue won't go away on its own, even if you know that the notice is incorrect.

Know When to Call a Professional

If you feel like you’re in over your head, consider contacting a tax professional. You should definitely have a professional advocating on your behalf if you’re trying to dispute something based on an interpretation of a state tax law or if you're dealing with the IRS.

Contact an enrolled agent (EA), a certified public accountant (CPA), or a tax attorney before you do anything. These are the only professionals who are permitted to represent you before your state tax agency or the IRS.

If the issue is a missing form or something just as simple, you can try to resolve the issue on your own, working with state tax officials.

The Taxpayer Advocate Service (TAS) can help with tax disputes with the IRS and might be able to steer you to a professional to help with state tax matters.

A Phone Call Won't Solve It

Calling the state is probably the least effective and least efficient way to handle a state tax dispute. State tax departments are often understaffed and overwhelmed, so there are other options you most likely want to consider first.

Another consideration is that call centers aren't manned by tax experts. These employees usually have training in customer service and little actual tax knowledge, and they’re probably going to want documentation that you can’t give over the phone. Don’t expect to resolve the issue with a phone call unless your tax issue is very simple or you're able to speak with the actual auditor or adjuster who's been assigned to your case.

Ask the Right Questions 

Be sure to ask the right questions if you do attempt a phone call and manage to get through to someone who might be able to offer you some guidance. Ask for the name of a specific person to write to or call about your issue. Find out whether there's a specific procedure for appealing a tax assessment, what type of documentation you'll have to provide, and to what address you should send a protest letter.

Gather Your Evidence 

You must have documentation to support your claim. For example, make sure you have bank records to back up your claim if the state is saying that you didn’t make a payment when you actually did. A canceled check is best, but a bank statement will do if you paid electronically.

Write a Letter

A letter can present a persuasive argument for your case, but make sure you have evidence to support all your claims.

It's absolutely essential to include the Social Security number or other tax ID number that you used on the return in question. You'll also need the notice number if it's included on the notice you received. It's possible that no one will be able to help you if you can't provide this information.

Be sure to attach copies of your relevant documentation, and note the attachments in the letter. Most importantly, don't admit fault.

Don't send partial payment or make a promise to pay.

Mail the letter by certified mail so you can be sure it's delivered and signed for. The IRS provides a list with other contact information for all states via their websites. Emailed letters are rarely answered.

Follow Up 

Wait a couple of weeks for your letter to be processed, then follow up with a phone call if you haven't received a response. Some states enter correspondence into a computerized registry. They might be able to tell you whether your correspondence was received and who is handling it.

Article Sources

  1. State of California Franchise Tax Board. "Letters: Personal and Business Notices."

  2. Internal Revenue Service. "Understanding Tax Return Preparer Credentials and Qualifications."

  3. Internal Revenue Service. "Resolve Tax Disputes."