Seeing Fearsome IRS Problems when you get a Letter from them? Relax, it's Probably Nothing
It's bad enough that you have to deal with the IRS; you pay your taxes, and you want to be done with them. Unless it's for a tax refund, there is nothing you welcome less than a letter from the tax authorities. It kind of feels like a predawn knock on your door from the Gestapo. But really, we just tend to exaggerate these things. A letter from the IRS is almost never about big IRS problems we've landed in; almost always, they are about some little mistake you might have made adding things up, and about the possibility of a lower estimate. If it does turn out that you owe the IRS more money than you thought, the letter could be about a little in back taxes and the 4% interest you on it. If you owe $1000 in taxes, that could not possibly work out more than $40.
The IRS says that they send out over a million letters every year to people, and almost always, what they have in mind is nothing bigger than, maybe an unsigned tax return. Or like it happened to many in 1998, they could figure that there were mistakes they made on your return - problems that they blame themselves for, that moves them to refund you some money. After the simple unsigned returns, the second most popular of IRS problems that call for a letter has to be how you made a mistake reporting interest or dividends received. You are supposed to report those on a Form 1099. If the amounts you received, don't gel with what is to be seen on your return, of course you will get a letter from the IRS, but that is nothing to be worried about.
There are lots of opportunities for clerical errors year at the IRS too. And then you'll be made to go ask your bank for a record of your income, to furnish to the IRS as proof. Sometimes IRS problems can occur where they believe you haven't even reported your income, even if you really have. There is this all the pressure they are working under. For instance, someone I knew, got a letter that said that she owed additional taxes on five items that had not been reported. In fact, they were indeed reported on the included Schedule B. All she needed to do was send them the same return again, with all the right items underlined. And she was out of the woods.
Then there is the mother of all IRS problems - a tax audit. If ever there was a piece of sound advice you could get here, it would be the one that told you to never represent yourself. You do need professional representation on an audit. There are some audits that just ask to focus on some minor areas, like perhaps your donations to charity. On every other kind of tax audit though, you would be best served with proper professional representation.