The IRS receives information from third parties, such as financial institutions, gambling establishments, and employers. Through the use of an automated system, this information is compared to what is reported on your tax return. If the amounts do not align, an IRS Notice CP2000, also known as an underreporter inquiry, is issued. Although it may look and feel like a bill, a CP2000 is simply a proposal to adjust your income, payments, credits, and/or deductions. Those adjustments, if accepted, may result in a refund or additional taxes owed. If you recently received a CP2000, keep reading to find out what you should do next.
What to Do if You Get IRS Notice CP2000
The IRS sends out millions of CP2000 notices annually. In some cases, these notices are sent in error or they’re inaccurate. That’s why it’s so important to deal with your notice as soon as possible.
Read The Notice
The first thing you should do is thoroughly review your CP2000. It includes a summary of proposed changes to your tax return and the proposed tax amount (including interest), as well as any payments you may have already made.
Your notice will also include the amounts you reported on your return (original or amended) and those reported to the IRS by third parties. Review these amounts carefully and compare them to your W-2s, 1098s, 1099s, and other financial records. If you need a copy of your tax record, you can request your transcript online or by mail.
Additionally, your CP2000 will include an IRS phone number for assistance and list the steps you need to take to respond to the notice.
Respond to The Notice
Once you’ve reviewed the notice for accuracy, you’ll need to respond before the deadline date. If you are unable to submit your response on time, call and request an extension before the original deadline passes. The IRS will generally give you an additional 30 days to respond.
- If you agree with the changes proposed – Complete the IRS Notice CP2000 response form and mail it, along with your payment, to the address provided on the notice. You may also fax in your form and make your payment online. If you’re unable to pay the tax due in full, you can request an installment agreement to spread the payments out over time.
- If you disagree with the changes proposed – Complete the response form and include a statement that lists the reasons why you disagree with some or all of the changes proposed. Be sure to include documentation (evidence) to support your position. If an employer or business sent the IRS incorrect information, you should contact them directly. Ask them to provide a corrected document or statement to explain the error. Include a copy of this documentation with your response. Do not file an amended return. If the IRS accepts your response, it will correct your tax return. It is, however, a good idea to include the following statement in your letter to protect your appeal rights: “Should the IRS disagree with this response, I request a hearing with the IRS Office of Appeals.” You should also include your phone number and the best time to be reached. This will allow the IRS to contact you directly and possibly shorten the time it takes to resolve your issue(s).
Be sure to review your IRS Notice CP2000 and respond within the given timeframe. If you fail to reply by the deadline date, the IRS will send you a Statutory Notice of Deficiency (CP3219A). Next, you’ll receive an actual bill that includes the balance due, plus penalties and interest.
Follow Up With The IRS
Once you send in your statement and documentation, be sure to follow up with the IRS in about 8 to 12 weeks. Most decisions are made within a few months (30 to 90 days) if the IRS has all the information needed. An incomplete or late response, however, can take much longer. It’s also a good idea just to check in to ensure your response was received. Due to recent backlogs and staff shortages, it’s not uncommon for correspondence to get lost or slip through the cracks.
Tips to Avoid Future Problems
Once you’ve settled your current issue, there are several things you can do to reduce the risk of receiving another IRS Notice CP2000 in the future.
- Keep accurate and complete records.
- Do not file until you have all of your income documents and forms.
- Verify that all information provided by third parties (employers, banks, etc.) is correct.
- Include all of your income on your return.
- Follow the IRS instructions for reporting income, expenses, and deductions.
- File an amended return if you receive additional information after you file.
Of course, one surefire way to reduce the risk of future tax preparation errors is to work with a tax professional. With nearly two decades in the business, the Tax Defense Network team can help you navigate the complexities of state and federal tax codes. We’ll work hard to maximize your tax credits and deductions while minimizing your tax liability. To learn more about our affordable tax services or to get help with handling a CP2000 notice, call 855-476-6920 for a free consultation and quote.