The IRS sends CP2000 notices to over 6 million every year. This notice informs you of the discrepancy and proposes a change to your tax payments or credits and offers you a chance to respond. You may agree or disagree with the IRS, but you must send a reply to prevent penalties and interest.
An IRS CP2000 notice is automatically set off and sent by a computerized system when the amount you report on your tax return fails to match the information the IRS receives from other sources such as your employer, bank, and other third parties. The IRS matches returns with information from third parties usually after the original return due date.
An IRS CP2000 notice is not a bill, and it’s not also an audit notice. In theory, it could address either an overpayment or an underpayment, but of course, it is the underpayments that concern us the most. If there is a discrepancy, it could be due to an error by you, a third party or even the IRS computer system. In many situations, a CP2000 notice occurs because the tax preparer forgot to include the income, the client of the tax preparer didn’t provide the income document (.e.g. 1099), or the taxpayer moved and did not get the document.
What to Do When You Receive a CP2000 Notice from the IRS
When You Receive a CP2000 Notice from the IRS, read the notice carefully and determine if you agree with the IRS calculation and then respond. Normally, the IRS will include a response form. If they do not include a response firm, they will include instructions on what you ought to do. Either way, you must respond within the time the notice shows, usually 30 days from the date of the letter (not the date you received it) or 60 days if you were out of the country. That implies the response must be sent to the IRS within 30 days, it does not mean you have 30 days to mail it. If you can’t meet the time limit, call the number on the notice to ask for additional time to send a response. If you do not respond, the IRS will send out letter 3219A Notice of Deficiency.
How to Determine Whether You Agree with the CP2000 Notice
You will want to carefully scrutinize your financial activity for the year cited before concluding whether the figure on the notice is accurate.
- As always with tax matters, gather and put in place relevant documents including important past tax returns, the W-2s and your 1099s.
- You may want to order a transcript of your return from the IRS by following the guidelines on the IRS website. You can obtain a copy of your return by completing and sending Form 4506-T, Request Transcript of Tax Return to the IRS.
- If the information you originally used to determine your taxes is different from what you come up with after reviewing your documents, you or your tax preparer should calculate your taxes to see if the tax due amount listed on the CP2000 is accurate.
What to Do if You Agree with the CP2000 Notice
- If you agree with the notice, check the box showing agreement, sign the form and send your reply to the IRS with payment using the envelope the IRS provides.
- If a form was not added, follow instructions on the notice.
- Alternatively, you can fax the completed form to the number indicated in the notice. If you choose to fax, include your name, social security number and tax year on each page.
- If you are married and filed jointly, you and your spouse must sign the notice.
What to Do if You Agree but Cannot Pay the Entire Amount
You may agree with the amount stated on the IRS CP2000 notice but find you are unable to pay. Penalties and interest will likely keep growing if you do not pay immediately. However, you have options. If the amount you owe is a large one, you may want to discuss the following options with a tax professional.
- Request a monthly installment agreement
- Send a completed Form 9465, Installment Agreement Request when you send your response to the CP2000 Notice or
- Visit the IRS website to learn how to apply online for a payment plan.
- Request Currently Not Collectible Status if you are unable to pay the IRS anything currently. The IRS will revisit this later to see if your financial situation has changed. Interest will continue to accrue
- Seek an agreement that allows you to pay less than you owe either in a lump sum payment or in monthly payments. The application for such an agreement is known as an Offer in Compromise. The IRS may approve an Offer in Compromise if they think the amount you suggest is the most they can hope to collect within a reasonable amount of time. Most Offers in Compromise are rejected, but if you would like to pursue this option, you will vastly enhance your chances of acceptance by consulting an experienced tax professional who can advise you if you qualify and how much to offer.
If You Disagree or Partially Agree
- If you disagree (even partially) with the CP2000 notice, simply check the “I do not agree” box on the response form, sign it and send it back to the IRS with documentation buttressing your position. Send photocopies rather than originals. The more meticulous you are, the more likely you will be to persuade the IRS.
- You may send the reply in the envelope provided or a larger envelope. The notice will also give you a fax number. If you choose to fax your response, include your name, social security number and tax year on each page.
- Contact the IRS or your tax professional if you have any questions. You will find the proper IRS contact information on the notice.
- If you believe a business or person has mistakenly reported information that alters your taxes, contact them immediately and ask them to send a corrected statement. Include a copy (hang onto the original) with your response to the IRS.
- You may include a corrected return with your response if you feel it will help explain your position. However, do not file an amended return.
- Your notice may show that you owe penalties. You can argue against this in your response as well.
- If you are married and filed jointly, both you and your spouse must sign the notice.
No Need to Amend Your Return (Usually)
Do not file an amended tax return for the tax year on the notice you receive. The IRS will make corrections on your return if they agree with your reply to the CP2000 notice. You may, however, want to file amended tax returns for earlier years if you made the same type of mistake on other returns.
There is exclusion. If you need to adjust additional items such as credits or additional income that are not addressed on your CP2000 notice you should amend your return. If you do this, write “CP2000” on top of the amended return and attach it behind your completed CP2000 notice response form.
What Happens After You Respond to Your CP2000 Notice
Once the IRS receives your reply and supporting documentation that you disagree with the CP2000 notice, they evaluate it. If they accept your explanation, they will send you a letter stating that the issue has been resolved.
Tips to Avoid Getting an IRS CP2000 Notice
The IRS recommends preventing future problems by;
- Keeping complete financial and tax records
- Not filing tax returns until you have all income statements
- Double-checking tax records you get from third parties like your employer and your bank including all your income on your tax return
- Accurately reporting income, expenses, and deductions
- Filing an amended tax return when you receive new and relevant details that affects your taxes