What This Letter Means
Letter 2657 comes from the IRS Employee Plans function. During an examination of a retirement or other employee benefit plan, the IRS can find facts showing that an individual's Form 1040 or a corporation's Form 1120 was reported wrong. It fixes that through a "discrepancy adjustment."
The process starts with Letter 3605, a 30-day letter with a proposed report. Letter 2657 comes next if you responded and your information changed the proposed tax or penalties but didn't eliminate them. It includes a revised report.
Two related letters: Letter 2658 means your information didn't change the original report. Letter 2656 closes the case with no change.
What's in the Revised Report
- Form 4549-E, Income Tax Discrepancy Adjustments, with the revised tax, penalties, and interest.
- An explanation of the issues, the facts, the law, and the IRS position.
- A statement that the discrepancy adjustment doesn't constitute an examination of your tax return.
- A statement of whether interest suspension under IRC 6404(g) applies.
If You Agree
Sign the report and return it. Pay what you can. If you can't pay the balance within 120 days, ask about an installment agreement.
If You Disagree
You have the right to discuss the proposed adjustment with the examiner's supervisor and the right to appeal. To go to Appeals, file a written protest that meets the requirements in Publication 5, Your Appeal Rights and How to Prepare a Protest If You Disagree.
If You Don't Respond
If you neither sign the report nor file a protest, the IRS closes the case for a statutory notice of deficiency, the 90-day letter. That letter gives you the right to petition the U.S. Tax Court, with a hard deadline. Don't let it get that far without a plan.
Keep copies of everything you send and use certified mail. You can have a representative handle the case with Form 2848.
If you received Letter 2657 after an employee plan exam, call us at (813) 229-7100.