Underreporting of Income

To accurately determine your tax liability, you should maintain detailed accounting records that account for all the income that you made that tax year. This income may be wages paid to you by your employer, cash income, tips, bartering transactions, virtual currencies, and foreign income. You are responsible for tracking and accurately reporting your income to the IRS.

When completing your tax return, you want to know what income is taxable and what is not. You want to be aware if your occupation affects your taxes, such as if you are a member of the military or clergy. Additionally, when filing your tax return, you want to wait until you have received all your income statements, if you do not you will have to file an amended return. Filing your tax return is a complex process, so what happens if you underreport to the IRS?

What Happens If Your Report Is Inaccurate?

When verifying if an individual’s tax report is correct, the IRS will employ the assistance of an automated system known as the Automated Underreporter, or AUR. The AUR’s job is to compare the income information that was reported by the individual to that reported by third parties. These may be employers, other taxpayers, and financial institutions, like banks or businesses. This comparison is conducted in an attempt to locate any potential discrepancies between the reports. If a discrepancy is discovered, then the IRS will issue a Notice CP2000.

What to Do If You Receive Notice CP2000

A Notice CP2000 is not a bill, it is a proposal by the IRS to adjust your payments, income, credits, and deductions. It will provide you with the information that the IRS has on your tax situation and its effect on your tax return. This information will include the amount which you reported on your initial tax return form, the amount calculated by the IRS, and the proposed adjustments that may come with it.

When completing the response form, you will have two options; you may either agree with the proposed changes or disagree with them. Despite what you select, you want to respond within 30 days to ensure a quick resolution and acquire the least amount of interest and penalties.

If you decide to agree, state which of the changes you agree with, sign the form, and send it back in the envelope provided. If you are filing jointly, you and your spouse must both sign the form. After agreeing, you must pay the payment and interest stated on the notice. To prevent further interest from compiling you must pay off the amount in full within 30 days of receiving the notice. However, if you are unable to do so you may apply for an Offer in Compromise or an Installment Agreement.

If you disagree with one or more of the proposed adjustments, you must state that and provide a signed statement explaining why you do not agree with them. Additionally, you should provide any supporting documentation to strengthen your case and provide a phone number that the IRS may reach you at to resolve any issues as quickly as possible.

If you disagree because you believe that the information on the notice is incorrect, you will want to contact the third party that reported said information and ask them to send a corrected report to the IRS. If they refuse, include an explanation as to why the information is wrong in your response to the IRS. If you believe that the information on your notice is wrong because of fraudulent activity or identity theft, call the IRS immediately to inform them of the situation.

What We Can Do For You

Here at Delia Law, we will walk you through filling out your response form to the IRS to ensure that all the information provided is correct to prevent any further issues. We will also help you to secure a payment plan if needed to pay off your owed total in full. Additionally, if you disagree with the notice, we will help you to compile the correct documentation to make your case.

Call us today at our San Diego Office (619) 639-3336, our Los Angeles Office (310) 494-0100, our Bethesda Office (410) 630-3336, or our New York Office (646) 862-2854 for a free consultation. You may also complete the form below to contact Delia Law for a no-cost attorney consultation.


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