Say that you filed a tax return with your spouse, and you fully believed that your spouse reported all of their income. The IRS will review the taxpayer’s CP2000 response and, through a separate IRS letter, either reverse or uphold the proposed assessment. If the IRS upholds the proposed assessment, the taxpayer will receive a separate Statutory Notice of Deficiency. This notice allows the taxpayer to further challenge the proposed assessment in U.S. Tax Court by filing a Petition within 90 days of the issue date of the Statutory Notice of Deficiency. If you choose to file an amended tax return, be sure to include it with your CP2000 response form.
- To top it off, cryptocurrency exchanges are unable to provide their users with accurate tax reports due to the transferable nature of digital currencies.
- The IRS website recommends writing “CP2000” at the top of your return and attaching it behind your completed response.
- If you are under audit, the IRS auditor would review your books and records to figure out the correct tax you owe.
- The response should include a cover letter explain your agreement and disagreement.
- Some discrepancies are even caused by IRS computer system errors.
- They’ll send you a letter explaining the appeals process, including your hearing rights and how to submit additional information.
You already filed your tax return, paid the balance, and moved on with your life. A CP2000 notice from out of the blue often creates a tax bill that you haven’t budgeted for. A CP2000 notice is sometimes referred to as a “paper audit,” but really it is just a correction of your tax return. If you disagree with the proposed changes in the CP2000 and send the IRS information supporting your claim, the IRS should take between 30 to 90 days to send you its decision. If you can’t pay the full amount right away, you can set up a short-term payment plan or a long-term installment agreement with the IRS.
Understand your IRS CP2000 Notice
The notice gives you a chance to correct and clarify the information. It will outline the specific issues with your return and provide the next steps to take for your tax return to be amended or the issue resolved quickly. It can be unsettling to receive any IRS notification but try not to worry when you receive a CP2000 Notice. IRS Notice CP2000 https://kelleysbookkeeping.com/ is one of the most common IRS letters that we see in our CPA practice. The IRS mails these notices to taxpayers when information from a third party source (such as a 1099 or W-2) does not match the information the taxpayer reported on their tax return. A CP2000 Notice from the IRS usually means that the taxpayer did not report all their income.
- Bench assumes no liability for actions taken in reliance upon the information contained herein.
- The one thing to keep in mind is that you should do so promptly.
- You would want to review that the IRS has made the appropriate changes to include your response for the disputed items & penalty abatement request.
- Even though the IRS initiated a review process by sending you a CP2000 Notice in the first place, it’s still your responsibility to ensure everything is handled promptly to avoid penalties.
There is also a long-term variety, whereby payments can be made over six years. Interest and penalties will continue to accrue until the debt is paid. At the W Tax Group, we have extensive experience helping people with a wide range of tax issues. We can start with a free consultation, and then, help you find the best path forward for your situation. The OIC program lets you settle your tax bill for less than you owe. You can either make a single lump sum payment or make payments over a two-year term.
Topic No. 652, Notice of Underreported Income – CP2000
In the meantime, the following sections outline how you should respond based on your situation. While one of the most common reasons for an IRS audit is underreporting income, an audit notice is different from a CP2000 notice. For Americans with income under $1 million, the audit rate is less Irs Cp2000 Letter Overview than 1%, so audits don’t happen very often. While it’s a very good idea to enlist the services of a tax lawyer for an audit, you may be able to resolve a CP2000 notice on your own. Once you understand your position with the IRS, we can also help you enlist support to deal with the IRS.
No one wants to receive an unexpected bill, especially if they cannot spare the funds to pay it. The CP2000 notice will outline what discrepancy the system found, what your proposed amount due is (or what extra refund they propose to send you!), and how to respond. With this, the IRS provides a response form, or instructions for responding. The IRS constantly warns of con artists who pose as the IRS to try to scam taxpayers out of money.
How Long to Wait After Responding
Failure to respond in time can lead to penalties and fees, even if the error comes from the IRS computers. You can call the IRS or visit the Understanding Your IRS Notice or Letter page to determine whether your notice is legitimate or not. You can also contact a tax attorney for professional assistance in these matters. You can always appeal the decision if you disagreed and the IRS rejects your explanation.
However, a CP2000 notice is a fairly common, auto-generated letter that is typically not too troublesome to resolve. If you choose to file an amended return, write « CP2000 » on top of your return and attach it behind your completed response form. To ensure the information is sent to the proper area for processing, send the information in the envelope provided or fax it to the number shown on the notice.
The massive IRS computer will then compare all income tax returns with information returns, such as wages (Forms W-2), and interest and dividend statements (Forms 1099). If there is a mismatch, the IRS sends a computerized notice (CP-2000) which identifies the discrepancy and recalculates the tax due plus interest and penalties. The CP-2000 can be challenged by the taxpayer, who has the burden of proof. Usually, a letter (or two, or three….) will be required to resolve the issue if the taxpayer is correct. If the IRS is correct, then payment of the tax plus interest must be made. However, the taxpayer may be able to have the assessed penalty abated if reasonable cause is given in writing.
In fact, many taxpayers who get a CP2000 notice don’t end up owing anything. Get unlimited advice, an expert final review and your maximum refund, guaranteed with Live Assisted Basic. Your clients rely on you to give them clear and accurate information regarding their income tax. If they’ve received a CP2000 notice, you can help calm their nerves and come up with a solution that works for them as well as for the IRS.