Taxpayer Correspondence

Taxpayer Correspondence

Drafts structured correspondence summarizing tax records and financial information for authority responses, audit preparation, or advisor-client communication.

Prerequisites

Gather before drafting:

• Tax returns — federal and state for relevant years
• Income documents — W-2s, 1099s (INT, DIV, MISC, NEC, B, R, SSA), K-1s
• Deduction/credit support — receipts, 1098s, 1098-Ts, charitable records
• Financial statements — bank/brokerage statements, business P&L if applicable
• Authority correspondence — IRS/state notices, inquiry letters, audit notifications
• Filing context — filing status, dependents, estimated payment history

Quick Start

1. Collect all source documents for the relevant tax year(s)
2. Build the identification block with taxpayer info and purpose
3. Populate income, deductions, and credits — tie every figure to a source document
4. Summarize tax position (liability, withholding, balance due/refund)
5. If responding to a notice/audit, add the authority response section
6. Run the compliance checklist
7. List next steps with deadlines bolded

Output Structure

1. Identification Block

2. Income Summary

Organize by IRC category. Reconcile each line to source documents. Flag discrepancies between 1099 reporting and return amounts.

3. Deductions & Credits

Deductions:

Credits:

4. Tax Position Summary

Include: prior-year carryforwards (NOLs, capital losses, credits), amended return history, and open statute-of-limitation periods (3 years per IRC §6501; 6 years if >25% gross income omission).

5. Authority Response Section

Include only when responding to IRS/state notice or audit.

• Notice/Issue Identification — restate each item questioned
• Position & Support — for each item: taxpayer's position, legal authority (IRC, Treas. Reg., Rev. Rul., case law), and supporting documentation
• Penalty Abatement — reasonable cause (IRC §6664(c)), first-time abatement, reliance on professional advice

6. Compliance Checklist

• [ ] Filing status appropriate and documented
• [ ] All income reconciled to information returns
• [ ] Estimated payments meet safe harbor (IRC §6654 — 100% prior year or 90% current; 110% if AGI >$150K)
• [ ] Penalties calculated: failure to file (§6651(a)(1)), failure to pay (§6651(a)(2)), accuracy-related (§6662)
• [ ] Record retention met (3-7 years)

7. Recommendations & Next Steps

Prioritize time-sensitive items with bold deadlines. Include actions required, documents to gather, estimated payments due, and planning opportunities. Flag statute-of-limitation or response deadlines prominently.

Pitfalls & Checks

• Privacy — never include full SSN/TIN; last four digits only
• Reconciliation — tie every figure to a source document; note unresolved discrepancies explicitly
• No fabrication — identify document gaps; never estimate or fabricate figures
• Uncertainty — disclose reasoning and uncertainty level for ambiguous positions
• Audience tone — plain language for clients; precise IRC terminology for authority responses
• Circular 230 — include disclaimer on written tax advice when applicable; do not provide covered opinions without appropriate disclaimers
• State considerations — address state-specific conformity or decoupling from federal provisions