The envelope is recognizable before it is open, and the first reaction is almost always disproportionate to what is inside. The overwhelming majority of these letters are not audits. They are notices, generated automatically, usually saying that a number on the return does not match a number somebody else reported, and usually resolvable by mail.
What follows are the questions people ask when one arrives, in the order they tend to ask them.
Is this an audit?
Almost certainly not. The most common notice is a proposed change, produced when a third party filed a form reporting income or a payment and the return did not reflect it. A brokerage, a client who filed a form for contract work, a lender reporting cancelled debt.
The letter proposes a corrected figure and gives a deadline to agree or disagree. That is not an examination of your books. It is a computer noticing a mismatch, and a mismatch has an innocent explanation more often than not.
The way to tell the difference is the letter itself. Read the top line, which states what it is, and the section that says what happens if you do nothing. Those two sentences tell you nearly everything about how serious it is.
Do I need to hire someone?
For a straightforward notice about a single missing form, generally no. You can respond yourself in writing, attach the document that explains it, and be done.
Paying for representation is worth it when three things are true. The amount is large enough that being wrong hurts. The issue turns on judgment rather than arithmetic, which covers questions like where the line sits between a side operation run for profit and an expensive hobby, or how a worker should have been classified in the first place. Or the letter is about more than one year, which usually means the same question is being asked about a pattern rather than an incident.
If you do hire someone, hire the kind of person who can actually represent you: a CPA, an enrolled agent, or an attorney. An enrolled agent is a preparer licensed specifically to represent taxpayers, and for a routine dispute they are frequently the least expensive of the three.
What if the notice is wrong?
Say so, in writing, by the deadline, and include the document that proves it. This happens constantly. A form was filed under the wrong identification number, income was reported twice, a basis figure was missing so a sale looked like pure profit.
Respond to the address on the notice, reference the notice number, keep a copy of everything, and send it in a way that gives you proof of delivery. Then expect it to take a while. A response that has been received and not yet processed still generates the next automated letter in the sequence, which is alarming and does not mean you were ignored.
What happens if I ignore it?
The sequence continues without you. A proposed change becomes an assessment, an assessment accrues interest and penalties, and eventually the collection process begins, which can reach a bank account or wages. None of that happens quickly and all of it is avoidable at any earlier point.
The important thing is that the deadline in the letter is real. Missing it does not end your options, but it moves you from a simple disagreement to a more formal process, and formal processes cost time and money. Answering by the date, even to say you need longer, keeps you in the cheap part of the system.
Can a penalty be removed?
Sometimes, and asking costs nothing. There is a long standing administrative practice of relieving certain penalties for a taxpayer with a clean compliance history who has otherwise filed and paid on time. There is also relief where there was a genuine reasonable cause, meaning circumstances outside your control such as serious illness, a natural disaster, or records destroyed in a fire.
Both are requests you make, not adjustments that happen automatically. Write plainly, state what happened and when, attach anything that documents it, and ask directly for the penalty to be abated. Interest is treated differently from penalties and is much harder to remove.
What if I agree but cannot pay it?
This is the question people are most reluctant to ask and the one with the most straightforward answer. Agreeing with a notice and being unable to pay are separate problems, and treating them as one is what turns a manageable bill into a collection matter.
Installment arrangements exist and are routine. So does a process for asking whether the amount itself should be reduced when a taxpayer genuinely cannot pay it, though that one is far more demanding and involves disclosing your finances in detail. The practical advice is to file on time regardless of whether you can pay, because the consequence of not filing is generally worse than the consequence of not paying, and the two carry separate penalties.
Be wary of anyone advertising that they can settle a tax debt for a fraction of what is owed. Tax relief advertising is a well worn corner of consumer protection enforcement, and the Federal Trade Commission has brought cases against firms in it more than once. The processes those firms use are the same ones available to you directly.
What should I do differently next year?
Wait for the documents. A large share of these notices come from returns filed early, before a corrected form arrived in March. If you have investments or contract income, filing in the first week is a false economy.
Keep the notice and your response in the same folder as that year's return. If the same issue recurs, having last year's resolution in hand shortens the conversation considerably.
And read the whole letter once, slowly, before doing anything. These notices are built from templates, which is why they read so strangely, and it also means the paragraph telling you exactly what to do is somewhere on the page. It is just rarely the paragraph people read first.