A CP2000 notice is a letter sent by the Internal Revenue Service (IRS) to inform taxpayers of discrepancies or inconsistencies found in their tax returns. The purpose of understanding a CP2000 Notice is to propose changes to the taxpayer’s return and provide an opportunity for the taxpayer to respond and address any issues. The CP2000 Notice also has a newer, slightly more courteous sibling: The CP2501 Notice. CP2501 does the same job of identifying discrepancies with your tax return and IRS records, but invites you to respond before the IRS proposes an additional tax bill. The following information applies to either notice.
What triggers a CP2000 Notice?
A CP2000 Notice is issued when the information reported to the IRS by third-parties does not match the information that is reported on your income tax return. Third-parties that report information to the IRS include but are not limited to employers, banking institutions, and investment firms.
What happens if you receive a CP2000 Notice?
Step One: Don’t panic! In most cases, the changes proposed by the IRS are not correct, and can greatly exaggerate the additional tax you owe. If you read through the whole notice, the IRS acknowledges that their proposal is based off incomplete information and they invite you to respond with your own proposal. At Taxman Associates, our team has decades of experience responding to these notices. We have the expertise necessary to quickly and reliably help you resolve your CP2000 notice.
We will start by comparing the notice with your tax return and tax documents to identify where the issues are. If you can’t locate your records, we can also assist you with getting that information from the IRS.
Once we have all the information, we can determine if we agree or disagree with the IRS proposal. 9 times out of 10 we will disagree, because the IRS has incomplete info. For example, the self-employment income needs to be on the return, but so do the business expenses related to that job! The stock sales were left off, but reporting the cost basis completely changes the taxable income on the sale!
The CP2000 Notice will say it is not necessary to file an amended tax return, but we find that most of the time an amended return is the best way to respond. Does the change in your taxable income cause any other changes to your tax? Are the deductions and credits you are eligible for affected by the other changes? In our experience, it is usually best to look at the entirety of the tax return and make sure you are paying only the tax you actually owe. Even “straightforward” adjustments to your return can cause unexpected changes to your overall tax which might get missed if you only focus on the specific issue raised by the IRS.
What if I am late responding to the CP2000 notice and the due date has already passed?
It’s (probably) not too late! The due date on the notice is not a hard deadline to respond, or to make changes to your tax return. If the IRS doesn’t hear from you, they will move forward with their proposed changes and send you a bill for the balance due. You still have a chance to contest this bill, although the clock is now ticking, and it may be necessary to file a petition in tax court. In addition, if you miss the tax court deadline, we can still help you navigate the IRS bureaucracy to get the balance due adjusted to the correct amount. There are limits – we probably won’t be able to help much if you got a notice 10 years ago – but for notices received within the past couple years we should still be able to get your account corrected.
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Understanding CP2000 Notice can be complicated. If you receive a CP2000 Notice or CP2501 Notice in the mail, we are here to help! Please reach out to set up an initial consultation.
Thanks,
Matt
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