An IRS CP2000 is issued when the IRS (Internal Revenue Service) finds a potential discrepancy between their filed tax return and taxpayer information reported to the IRS. The CP2000 is a notice, not a bill. It proposes an update or alteration to your income, credits, payments, or deductions from your reported income tax return. This is often called an underreporting of income notice, although this is not the only reason it is issued. This notice is informational, but it is still important to address and to respond.
What Triggers a CP2000 Notice?
The IRS gets information from other parties, including:
- Employers
- Other taxpayers
- Banks
- Businesses
- Other financial institutions
This information is compared by the IRS’s automated system, the Automated Underreporter (AUR), to the information that you provided in your tax return. If the AUR detects an inaccuracy or discrepancy, an examiner will review your tax return and the third-party information. If the discrepancy is found by the examiner, the IRS will send out a CP2000 notice.
The adjustment could result in you as a taxpayer owing more taxes to the IRS or receiving a tax refund, or it could result in no change at all.
What Information Is Included in the IRS CP2000?
The CP2000 notice will list the information used to suggest an update to your tax return. This includes:
- Identifying the third party that reported the income or other financial amount, including their name, ID, and the tax document used
- The amount the third party reported
- The amount that you reported on your tax return
- The proposed changes suggested by the IRS
- A response form, voucher, and envelope
The notice will also give you a phone number provided by the IRS for assistance and explain what you should do to respond to the notice.
What Should I Do When I Have Received a CP2000?
The first thing you should do after receiving a CP2000 notice is review its accuracy. These notices can sometimes be inaccurate, and you may only owe a portion of the requested amount or none of the requested payment. The discrepancy may have been incorrectly calculated, or the information from the third party may be inaccurate.
Gather relevant important documents and compare the information you gave with your income, directions, and other tax return information. Determine if third-party information matches your own records. If you find similar discrepancies in your tax return, calculate what taxes you owe or are owed. Your calculations may also include new deductions or credits.
You must determine if the information and proposed change are accurate because you must respond to the IRS stating that you either agree or disagree with the proposed alteration. Relevant documentation is important if you need to prove that your tax return contained accurate information.
How Do I Respond to an IRS CP2000 Notice?
You can either agree or disagree with the proposed changes, but you should file your response within 30 days of receiving the notice or 60 days if you live outside the U.S. This will help resolve your tax issues more efficiently. It may also limit penalties and interests.
The notice will show interest calculated from the date the tax return was due until 30 days after the date on the notice, but it may not show other penalties. You can request an extension to send your response by calling, mailing, or faxing the request to the IRS, but interest will continue accruing until the amount is paid in full.
If you don’t want to go it alone or there are complex tax issues, it is prudent to hire a tax attorney to contact the IRS on your behalf. A tax attorney will submit an IRS power of attorney on your behalf to allow them access to your account. There is also an area on the CP2000, response form under the authorization section, to allow for a tax attorney to work with the IRS on your behalf.
The form can be submitted to the IRS by mailing it using the return address or by faxing the documents to the fax number provided in the notice.
You will not want to simply ignore a CP2000 notice, as this can cause more serious issues in the future. Failure to respond to the notice will result in the IRS sending a Statutory Notice of Deficiency, and later a bill regarding the amount due.
Agreeing With the Changes
If you find the information and proposed changes are accurate, you can fill out the response form stating that you agree with the changes and sign and date it. If you filed your tax return jointly with your spouse, both signatures are required.
If the changes require a payment, you can send that with the response. You can also wait for the IRS to make adjustments to your taxes and pay when you receive a bill. If the changes do not require a payment, you can wait for the IRS to make the necessary changes. You do not have to amend the tax return when you agree to the proposed changes.
If you must make a payment but are unable to afford it, you can request an application for a payment plan installment agreement or an Offer in Compromise.
An Offer in Compromise is much rarer, but it enables a taxpayer to settle a large debt for a smaller lump sum or periodic payment. Installment Agreements are more likely to be approved, but taxpayers must still meet certain requirements. An installment agreement requires you to pay the full tax debt but allows you to pay it back in small amounts over a period of time. If you qualify for either of these options, you still have to submit the CP2000 response form.
Disagreeing With the Changes
You may disagree with the changes because the amount requested is wrong or because the information provided by the third party is incorrect. Even if only some of the information is incorrect, you should fill out the disagree section on the form, sign, and date it. Joint filing spouses must sign together. When disagreeing, you should:
- Complete and submit the response form to the IRS, providing copies of documentation that explains why the changes are inaccurate. This may include missing income information or an altered W-2 or 1099. Provide a signed statement that explains why you do not agree with the changes that were made. You can also address the penalties associated with the tax. Provide the IRS with a phone number to resolve the process more efficiently, and state the best time of day to call.
- Contact the third party that provided the information if that was the incorrect part of the notice. You can request corrected documentation and/or ask them to provide a statement to the IRS correcting that information. If the third-party business or individual refuses to do this, provide a statement to the IRS as to why it is wrong.
- Do not complete an amended tax return. This is unnecessary, and the IRS will update the information if it accepts the corrections you made.
- Provide a signed statement if the unreported income was considered nontaxable under relief payments or financial assistance.
You can send the response and the above information and statements in the enclosed envelope or to the address listed in the response form.
IRS Response to a Disagreement
There are several ways the IRS may respond to a response form that disagrees with the proposed assessment. This includes:
- Accepting your explanation and the information you initially filed in your tax return
- Requesting additional information to confirm or deny the conflicting information
- Rejecting the response and sending a Statutory Notice of Deficiency followed by a bill
If your response is rejected, you may be able to appeal this decision.
Incorrect Information Due to Fraud and Identity Theft
The information provided in the CP2000 notice may be incorrect because someone else is using your name and Social Security number. In this case, you should contact the IRS. Submit an Identity Theft Affidavit, Form 14039, along with your response form. Review the IRS’s identity theft information to determine what else you can do.
What to Do Next
If something was incorrect in your tax return, it’s important to take steps to avoid these mistakes in the future. Correct the information on your copy of your tax return and anywhere else you keep this important information.
If it is a mistake that may have impacted other tax returns, review those returns as well. If it is present on recent returns, file an amended tax return to correct the mistakes and limit the penalties.
You should also request a transcript of your tax return after several weeks to ensure the discrepancy or inaccuracy was resolved. You can also call the IRS to determine if it was resolved, although it can take significant time to do so.
In the future, it is important to review your records to ensure their accuracy and double-check statements from third parties, particularly those that list your sources of income. This can help prevent future CP2000 notices for underpayment.
How Delia Law Can Help You
IRS tax issues can be stressful, regardless of the details of the situation. If you need assistance navigating a CP2000 notice, the tax attorneys at Delia Law can help. We can help you review the information in the notice to determine its accuracy and gather relevant information if it is inaccurate. If you need an installment agreement in order to pay back the IRS, our team can help you present a case. Contact our firm today.
