There are few things that can send a chill down your spine more than mail from the IRS. Just seeing the agency’s name on an envelope’s return address creates anxiety. If you find yourself in that position and open the mail to find a CP2000 notice inside, you don’t need to panic — but you do need to know what to do.
What Is a CP2000 Notice?
The Internal Revenue Service sends out CP2000 notices to taxpayers whose submitted tax returns do not reflect what’s been submitted by employers and others that provide the agency with information on the income you’ve received over the course of the tax year. Though these forms are not notifications that you’re subject to an audit, they do carry the full weight of an IRS inquiry, and as such you are required to respond fully and promptly by the indicated deadline.
The CP2000 is not just a notice that something doesn’t look right. Also known as an underreporter inquiry, it is notification that the income information the agency has received about you via forms like your W-2 and any 1099s does not match the information you’ve provided on your tax return. It can also point to issues the agency has regarding credits or deductions that you’ve taken. In addition to detailing those discrepancies, it will also suggest the amount of tax that you owe based on the new information and the amount of penalty that the agency has calculated would be appropriate based on the information they have.
A CP2000 notification is not the final word on monies owed or penalties. These notifications are computer-generated, and the system is not considered infallible. Taxpayers can file appeals arguing against both the determination and the penalties, and these appeals frequently address the situation completely or significantly reduce the amount owed. But they do need to be answered.
What should you do if you receive a CP2000 Notice?
The first thing to do is to take a deep breath. A CP2000 notice is no reason for panic, but it is definitely a reason to reach out to our tax office. That’s because there is a specific process that needs to be followed, and it must be completed within the time frame that the IRS dictates. At its core the process involves investigation and response, but the steps are more complicated than that. If you’re a current client, contact our office so we can help you with these steps. If you aren’t a client yet, it’s highly recommended that you contact us and don’t try to undergo this complex process alone:
- Determine whether you do, in fact, owe the taxes that the IRS has indicated that you owe. To do that you’ll need to retrieve all of the documents and statements that you’ve received under your Social Security Number for the year to make sure that you included everything on your tax return.
- If you find that you failed to include all income, you’ll need to recalculate your taxes, determining whether the missed information impacts deductions or credits that you’re owed or that you took. This calculation can then be compared to the number that the IRS provided for both the taxes you owe and the penalty that has been suggested.
- If you believe that the IRS calculation is correct, respond using the form provided, including any monies owed. If the amount exceeds your ability to pay at the moment, the IRS provides the ability to ask for an installment agreement.
- If you believe that the IRS calculation is wrong or only partially correct, you will need to provide documentation of why and submit that information to the agency. If some of their information is correct and your tax return needs to be modified, include the corrected return. Note that there is a difference between a corrected return – which is what you should use – and an amended return. Once the IRS reviews your corrections, they will either accept them and make the correction on your behalf or reject your response.
- If you agree that errors existed and want to discuss the penalties proposed by the IRS, the underreporter notice response can be used for these purposes.
- Await a response from the IRS. If you have not heard back in eight weeks, you can either call to determine the outcome of your case or check online to see whether a resolution has been noted. If the agency denies your response you are able to file an appeal.
Avoiding the same problem in the future
It’s important to keep in mind that if you’ve left essential income information off of your tax return once, there may be a problem within your information-gathering process that needs to be fixed. Take care to avoid future mistakes by gathering all of your income information before submitting your return, and if you’re not sure whether you have all of your wage and income transcripts you can request copies from the agency (though they are not likely to be complete until late May, long after the filing deadline.) It’s also a good idea to go back and make sure that previously-filed returns are also error-free. If you find the same issue, quickly filing an amended return will save you from having to pay a hefty penalty.
If you need professional help
Receiving a CP2000 notice is intimidating, and seeking professional assistance with the process is a smart move. If you’d like our help with responding, start by gathering the following: a copy of the notice and the associated tax return; tax returns from the year before and after the return the notice was sent about; copies of any responses that you’ve submitted and any other CP2000 notices you’ve received in the past; and any documents associated with deductions or expenses related to the subject of the CP2000. With those things in hand, contact us and set up a time to discuss your situation.