Letter 6712C: How to Handle IRS Tax Shelter Inquiries

Last updated 11/11/2024 by

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Summary:

Letter 6712C is an IRS notification issued to taxpayers under scrutiny for possibly engaging in aggressive tax planning or misuse of tax shelters. It informs taxpayers that the IRS is investigating their returns for potential non-compliance and may request further documentation. This article explains the steps recipients should take upon receiving this letter, including understanding its implications, gathering necessary documents, and responding to the IRS within specified timelines.

Receiving IRS Letter 6712C can be unsettling, especially if you’re uncertain about the reasons for the inquiry. This letter typically indicates that the IRS is examining possible tax shelter misuse or aggressive tax planning. Whether you were aware of any potential issues or not, a quick, informed response is crucial. In this guide, we’ll walk through what Letter 6712C means, what actions you should take, and how to avoid penalties by effectively addressing the IRS’s concerns.

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What is IRS Letter 6712C?

Letter 6712C is a formal communication from the IRS, typically related to inquiries into the use of questionable tax shelters or aggressive tax strategies. These tax shelters are often marketed as ways to significantly reduce taxable income, but some may cross legal boundaries, leading the IRS to scrutinize returns that involve these methods.

Why does the IRS issue letter 6712C?

The IRS issues Letter 6712C when they detect possible tax shelter misuse, overly aggressive deductions, or income-shifting strategies. Here are some common reasons why this letter might be issued:

Use of abusive tax shelters: Some tax shelters are structured to evade taxes in ways that the IRS deems illegal or unethical.
Questionable deductions or credits: Excessive deductions or credits that seem unrelated to actual business expenses may prompt the IRS’s attention.
Complex financial transactions: Transactions involving offshore accounts, trust structures, or multiple entities to obscure taxable income can raise red flags.

Key details in letter 6712C

The letter will outline specific items from your tax return under examination. It may request additional information or ask you to provide documents that support the deductions, credits, or other tax benefits you claimed. Understanding these details is essential to formulating a timely and appropriate response.

Pro Tip

Set up IRS account alerts online to get real-time notifications on any changes to your tax return or account. This helps you stay updated on adjustments and due dates.

How does letter 6712C affect you?

Receiving Letter 6712C means the IRS has reason to believe that your tax return may contain issues related to improper tax shelter usage or aggressive planning. Ignoring this letter could lead to fines, penalties, or even legal action if the IRS determines there was intentional wrongdoing.

Potential impacts on your tax return

Possible tax adjustments: If the IRS finds your deductions or credits are ineligible, they may adjust your return, which could increase your tax liability.
Delayed processing: Until the IRS receives adequate documentation, they may delay processing your tax return.
Penalties: Failing to respond or proving non-compliance could result in interest and penalties.

Acting quickly and carefully is essential to avoid negative consequences and maintain good standing with the IRS.

What should you do when you receive IRS Letter 6712C?

If you receive Letter 6712C, take the following steps to respond appropriately:

Read the letter thoroughly: Carefully review the details and understand the issues the IRS has identified with your return.
Gather supporting documents: Collect relevant records, such as receipts, financial statements, and proof of deductions, to support your claims.
Consider consulting a tax professional: A certified tax expert can help you understand the letter and build a proper response.
Submit a response by the deadline: Respond to the IRS within the specified time to avoid additional penalties or interest.

Pro Tip

Always keep copies of your tax filings and related documentation for at least seven years. This ensures you have records readily available if the IRS requests supporting evidence.

How to respond to IRS Letter 6712C

Steps to take when responding to letter 6712C

Responding to IRS Letter 6712C involves gathering evidence and crafting a clear, concise response. Here’s how to handle the process:
Review the letter carefully: The IRS will specify areas of concern in the letter, such as tax shelters or deductions. Ensure you understand each item listed.
Collect relevant documentation: To support your claims, gather documents, including receipts, transaction records, and legal documents related to your investments or deductions.
Write a response letter: Address each issue raised by the IRS in a written response. Be honest and thorough; if any mistakes were made on your return, acknowledge them and provide corrected information.
Mail your response: Follow the mailing instructions provided in Letter 6712C, ensuring you send all required documentation with your response.

Seeking professional guidance for your response

Consulting a tax professional or CPA is often beneficial when responding to IRS inquiries. They can help ensure your documentation is complete, communicate with the IRS on your behalf, and advise you on any potential penalties or adjustments.

Further support options for addressing IRS Letter 6712C

If you’re unsure how to proceed after receiving Letter 6712C, here are some resources you can turn to:

Contact a tax professional or CPA experienced in IRS disputes.
Visit the IRS website for more information on how to respond to notices and letters.
Reach out to a taxpayer advocate service for assistance in navigating complex tax issues.

Potential penalties or next steps if you don’t respond

Ignoring IRS Letter 6712C can have serious consequences:

Increased tax liability: The IRS may increase your tax due if deductions are disallowed.
Penalties and interest: Additional penalties and interest will accrue on unpaid taxes if the issues remain unresolved.
Possible legal action: In extreme cases, the IRS may pursue further legal action if they believe there was willful tax evasion.

Pro Tip

If responding to the IRS feels overwhelming, consider hiring a tax professional or an enrolled agent. These experts can help ensure your response is accurate and complete, minimizing the risk of errors.

What potential outcomes are possible?

Once you respond to Letter 6712C, several possible outcomes may follow:

IRS accepts your documentation: If you provide sufficient evidence, the IRS may accept your return as filed.
Partial adjustments: The IRS may allow some deductions but disallow others, resulting in a modified tax liability.
Investigation escalates: If the IRS finds substantial discrepancies, they may conduct a more in-depth audit of your tax returns.

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Frequently asked questions

What should I do if I disagree with the IRS’s findings in letter 6712C?

If you believe the IRS’s findings are incorrect, you have the right to dispute them. Gather all relevant documentation that supports your position and prepare a detailed written response explaining why you disagree with the assessment. It may be helpful to consult a tax professional who can help you present your case effectively. Be sure to respond within the deadline provided in the letter to avoid additional complications.

How long does it take for the IRS to respond after I send my documents?

The IRS response time can vary depending on the complexity of your case and the volume of inquiries they are handling. Typically, it may take several weeks to a few months to receive a response after submitting your documents. During peak tax season, processing times may be longer. You can contact the IRS or check the status of your response by using the contact information provided in Letter 6712C.

Can I receive an extension if I need more time to gather documents?

Yes, the IRS may grant an extension if you need additional time to collect and organize your documents. To request an extension, contact the IRS directly using the contact information in Letter 6712C and explain your situation. They will inform you if an extension is possible and provide any necessary instructions.

Is it possible to resolve issues related to letter 6712C online?

While some IRS issues can be resolved online, responses to Letter 6712C generally require mailing physical documents to verify authenticity. You may be able to initiate contact with the IRS online or by phone, but you will likely need to submit supporting documentation via mail. Review the instructions in Letter 6712C for specific guidance on how to submit your response.

What should I do if I’ve lost or misplaced letter 6712C?

If you’ve lost or misplaced Letter 6712C, you can request a replacement by contacting the IRS. Provide them with your personal information, such as your Social Security number, and details of the tax year in question. The IRS may be able to resend the letter or provide instructions on how to proceed without it. Having a tax professional assist in this situation can help streamline the process and ensure all necessary information is included in your response.

Need help understanding other IRS letters and notices? Visit our comprehensive guide to IRS Letters and Notices or search for the document you received in the table below.

IRS Letter or Notice Number

Notice Description

CP01	The IRS verified your claim of identity theft and will monitor your account.
CP01H	The IRS received a tax return with a social security number that belongs to a dead person.
CP02H	Money is due on an amended return based on a grant received due to Hurricane Katrina, Rita, or Wilma.
CP03C	You received the First-Time Homebuyer Credit for a house you purchased.
CP04	You may be eligible for tax deferment because either you or a spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice.
CP08	You may be entitled to additional money due to the Additional Child Tax Credit.
CP10	Your tax return changed due to a miscalculation, and the refund you wanted to apply to an estimated tax payment has changed.
CP10A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP11	You owe money because the IRS amended your return due to a miscalculation.
CP11A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment also changed.
CP11M	Your tax return changed due to a miscalculation of the Making Work Pay and Government Retiree Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP12	You are due a bigger refund because the IRS corrected one or more mistakes on your tax return.
CP12A	The IRS made changes to correct the Earned Income Credit (EIC) claimed on your tax return.
CP12E or CP12F	The IRS corrected a miscalculation on your return.
CP12M	The IRS made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.
CP12R	The IRS made changes to the computation of the Rebate Recovery Credit on your return.
CP13	The IRS made changes to your return due to a miscalculation. There is no refund or amount due. Your balance is zero.
CP13A	The IRS made changes to your return due to a miscalculation of the Earned Income Credit. There is no refund or amount due. Your balance is zero.
CP13M	The IRS made changes to your return due to a miscalculation of the Making Work Pay credit or the Government Retiree Credit. There is no refund or amount due. Your balance is zero.
CP13R	The IRS made changes to your return due to a miscalculation of the Recovery Rebate Credit. There is no refund or amount due. Your balance is zero.
CP14	You owe money on unpaid taxes.
CP16	The IRS made changes to your return due to a miscalculation. The refund you were due was applied to other tax debts.
CP21A	You owe money due to the changes you requested that the IRS make on your tax returns.
CP21B	You are due a refund due to the changes you requested that the IRS make on your tax returns. The money should arrive within 2 to 3 weeks.
CP21C	The IRS made the requested changes to your tax return. You will not receive a refund, and there is no tax due. Your balance is zero.
CP21E	As a result of your recent audit, the IRS made changes to your tax return, and you owe money as a result of those changes.
CP21I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP22A	The IRS made the changes you requested, and you owe money as a result.
CP22E	As a result of your recent audit, the IRS changed your tax return, and you now owe money.
CP22I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP23	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You owe taxes due to these changes.
CP24	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP24E	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP25	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You are not due a refund, nor do you owe any money. Your balance is zero.
CP31	You need to update your address because your refund check was returned to the IRS.
CP45	The IRS was unable to apply your overpayment to your estimated tax as you requested.
CP49	The IRS used all or part of your refund to pay a tax debt.
CP53	Your refund check will be sent by mail because the IRS can’t provide your refund through direct deposit.
CP57	The bank declined your payment, so the IRS was unable to draft funds from your bank account.
CP71	A reminder of the amount you owe in tax, penalty, and interest.
CP71A	A reminder of the amount you owe in tax, penalty, and interest.
CP71C	A reminder of the amount you owe in tax, penalty, and interest.
CP71D	A reminder of the amount you owe in tax, penalty, and interest.
CP88	The IRS is holding your refund because you haven't filed one or more tax returns, and it believes you will owe tax.
CP90	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy in a Collection Due Process hearing.
CP91	The IRS will levy up to 15% of your social security benefits for unpaid taxes.
CP120	The IRS needs documentation of your tax-exempt status.
CP120A	Your organization’s tax-exempt status has been revoked because it failed to file a Form 990 series return for three consecutive years.
CP130	You may no longer need to pay the Alternative Minimum Tax (AMT) because your tax return filing requirements changed.
CP152	The IRS received your return.
CP153	The IRS will send your refund by mail because your direct deposit did not go through.
CP161	You have an unpaid balance due to the IRS.
CP166	Your monthly payment to the IRS did not go through due to insufficient funds in your bank account.
CP178	You may no longer owe excise tax because your tax return filing requirements changed.
CP231	You need to update your address because your refund was returned to the IRS.
CP259	You did not file the business tax return identified in the notice.
CP259A	You should have filed these forms but did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard).
CP259B	The IRS requires you to file these forms but did not – Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259C	The IRS believes that you are a private foundation, but did not file the required Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259D	You must file this form, but you did not – Form 990-T, Exempt Organization Business Income Tax Return.
CP259E	You should have filed this form, but you did not – Form 990-N (e-Postcard) or Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP259F	The IRS requires you to file this form but did not – Form 5227, Split-Interest Trust Information Return.
CP259G	The IRS requires you to file this form, but you didn’t – Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.
CP259H	As a tax-exempt political organization, you must file this form, but you did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP276A	You submitted your tax liability schedule incorrectly. The IRS typically charges a Federal Tax Deposit (FTD) penalty for this but did not this time.
CP276B	The IRS did not receive the correct amount of tax deposits. It normally charges a Federal Tax Deposit (FTD) penalty but did not this time.
CP297	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP297A	The IRS has levied your assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP298	The IRS notifying you of its intent to levy up to 15% of your social security benefits for unpaid taxes.
CP501	You have a balance due on one of your tax accounts.
CP503	You have an unpaid balance on one of your accounts, and the IRS has not heard from you.
CP504	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy your state income tax refund to apply it to the amount you owe.
CP504B	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy certain property or rights to property to apply it to the amount you owe.
CP521	A reminder that you have an installment agreement payment due.
CP523	You have defaulted on your payment agreement. Therefore the IRS is terminating the agreement and will levy your assets.
CP601	Usted tiene un saldo pendiente de pago (dinero que le debe al IRS) en una de sus cuentas contributivas.
CP603	No hemos recibido respuesta de parte de usted y todavía tiene un saldo sin pagar en una de sus cuentas contributivas.
CP604	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará cualquier reembolso de impuestos estatales al que tenga derecho y aplicarlo al pago de su deuda.
CP604B	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará ciertas propiedades o derechos de propiedad y lo aplicará al pago de su deuda.
CP621	Este aviso es para notificarle que usted tiene un plan de pagos a plazos vencido. Por favor, envíe el pago inmediatamente.
CP623	Este aviso es para informarle nuestra intención de cancelar su plan de pagos a plazos y confiscar (embargar) sus bienes. Usted incumplió en su acuerdo.
CP711	Nosotros realizamos cambios a su planilla debido a que entendemos que hubo un cálculo erróneo. Como resultado de estos cambios, usted adeuda dinero por sus contribuciones.
CP721	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP722	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP771	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP772	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP773	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP774	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP959	Usted no radicó su planilla de contribución de negocios identificada en este aviso.
CP2000	The income or payment information on file doesn’t match your tax return. The discrepancy may result in an increase or decrease in your tax due.
CP3219A	The IRS has received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax.
CP3219N	The IRS didn’t receive your tax return, so it calculated your return based on the information received from employers, financial institutions, and others. If you want to challenge the proposed tax, you have 90 days from the date of this notice. If you are outside the country, you have 150 days.
Letter 0012C	The IRS needs additional information to process your tax return.
Letter 0484C	The IRS wants a completed
Letter 0525	Updates you on proposed changes after an IRS examination. Any changes are explained and details the refund due or taxes owed.
Letter 531	IRS Notice of Deficiency. The information the IRS received about you was different from what you reported on your return.
Letter 0668D(LP 68)	The IRS released their levy.
Letter 0549C	Your tax bill was paid.
Letter 0681C	The IRS accepted your payment proposal. However, this is not a formal Installment Agreement.
Letter 0757C	You did not adhere to the terms of your Installment Agreement.
Letter LT 11	The IRS plans to seize your property or rights to property.
Letter 1058	The IRS has not received your payment. It plans to seize your property or rights to property.
Letter 1615 (LT 18)	You must respond to the IRS within 10 days of this notice regarding past due tax returns.
Letter 1737 (LT 27)	Complete and sign Form 433F, Collection Information Statement.
Letter 1961C	Your application for a Direct Debit Installment Agreement was declined. It explains why and what you need to do to qualify.
Letter 1962C	Your application for a
Letter 2050 (LT 16)	The IRS is trying to collect unpaid taxes from you from returns that have been filed or from returns that have not been filed.
Letter 2257C	The IRS is providing the payoff amount that you requested.
Letter 226-J	An IRS letter to large employers notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP).
Letter 2271C	A request for an Installment Agreement has been approved. It explains the fees and how to qualify for a Low Income Fee Reduction. The letter may also request missing information.
Letter 2272C	An IRS letter explaining why your request to pay the balance due in installments was declined.
Letter 2273C	A confirmation letter of your request to pay the balance due in installments. It contained the amount to pay, fees charged, and where to send payment. Instructions on how to apply for the Low Income Fee Reduction included.
Letter 2318C	A response to a request to pay taxes due to payroll deductions. It also explains the fees that are charged.
Letter 2357C	The IRS is admitting that it did not send you the balance due notices that it should have.
Letter 2603C	The IRS accepted your installment agreement. The IRS will file a Notice of Federal Tax Lien on your personal property.
Letter 2604C	The IRS has accepted your request for installment payments. This IRS letter provides the monthly payment, the address where to send it, and the fees charged. The letter also provides instructions on how to apply for the Low Income Fee Reduction.
Letter 2761C	The IRS is requesting your combat zone service dates to ensure that it provides you with the special provisions and protection of the combat zone deferment. Copies of military orders or other documentation to support your time served may be requested. Civilians working in support of the Armed Forces may be required to provide a Letter of Authorization or a letter from their employer.
Letter 2789C	An annual reminder notice, as required by law, of the balance due to the IRS. It explains that penalties and interest continue to accrue until the balance is fully paid.
Letter 2840C	Confirms your Installment Agreement request and includes the payment amount and due date. This IRS letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify).
Letter 3030C	Provides an explanation of the tax, penalty, and interest still due on your account.
Letter 3127C	A confirmation of your request to make a change to your Installment Agreement. This IRS letter explains the fees for the change. Changes can be to the payment amount or due date, or it can include additional liabilities.
Letter 3174	A reminder of taxes due after the IRS has sent a Notice of Intent to Levy.
Letter 3217C	The IRS has accepted your request to pay the balance in installments. This IRS letter provides your payment amount, the due date, and fees charged. The letter also provides instructions on applying for the Low Income Fee Reduction (if you qualify).
Letter 3228 (LT 39)	A request to pay the balance due within 10 days using the envelope provided.
Letter 3500	The IRS has received your documents, and it needs additional time to review them.
Letter 3572	Your Federal Income Tax Return has been selected for examination. The IRS auditor requests that you call to schedule an audit appointment.
Letter 4883C	The IRS received your federal income tax return but needs more information to verify your identity in order to process your tax return accurately.
Letter 4903 (LT 26)	You must file your tax returns immediately. The IRS has previously contacted you, but it did not receive a response.
Letter LP 47	The IRS is trying to locate the person identified in the letter and is requesting that you provide their new address.
Letter LP 59	The IRS has not received a response to the notice of levy it previously sent.
Audit Letter 2205	The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer’s home, place of business, or accountant’s office (field audit).
Letter 915	You recently underwent an audit, and the IRS informs you that you now owe taxes.

Key takeaways

IRS Letter 6712C is an inquiry into the use of tax shelters or aggressive tax strategies.
Responding quickly and thoroughly with supporting documents can prevent penalties.
Professional guidance is valuable for navigating complex responses and ensuring accuracy.
Ignoring this letter could result in increased taxes, penalties, and possible legal consequences.

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