IRS CP2000 Notice – What to Do and How to Respond
The Internal Revenue Service’s CP2000 notice is a computer-generated notice received by taxpayers after filing an income tax return. The purpose of a CP2000 notice is to inform a taxpayer that information the I.R.S. received from third parties (employers, banks, brokerages, etc.) does not match the information reported on the taxpayer’s return. Taxpayers often receive CP2000 notices when taxpayers’ income or payment is inaccurately reported or unreported on their tax return.
There is no reason to panic when you receive a CP2000 notice. The first step a taxpayer should take when a taxpayer receives this notice is to thoroughly examine it. The I.R.S. will propose changes throughout the notice, and a taxpayer needs to understand each change the I.R.S. proposes. These proposed changes come in different ways. For example, the CP2000 notice could propose a change to income for an item left off the taxpayer’s return, or the I.R.S. could propose a decrease to an expense item as the third party reported the expense as less than the taxpayer reported it on their return. Once a taxpayer understands the proposed changes, the taxpayer must determine whether he agrees with the proposed changes. In order to do this, the taxpayer should compare the documents the taxpayer received (such as W-2’s or 1099’s) to the proposed changes from the CP2000 notice. If the taxpayer’s documents agree with the I.R.S.’s proposed changes, then the taxpayer should complete the response section of the notice and return it to the I.R.S. in the envelope provided.
If the proposed changes do not agree with the taxpayer’s documents, then the taxpayer has the right to contest the proposed changes. The taxpayer must draft a response and provide documentation supporting their position. The documentation supporting their position can range from forms received from financial institutions showing the correct amount of income received to self-prepared schedules and the underlying documents supporting the numbers on the self-prepared schedule. Once the taxpayer drafts their response and compiles their support, he must send the package of documentation to the I.R.S. with a copy of his CP2000 notice.
The I.R.S. will then process the taxpayer’s response and either accept or deny the response. If the I.R.S. accepts the response, no other action is necessary from the taxpayer. However, if the I.R.S. denies the response, the taxpayer still has the right to appeal the decision. A taxpayer facing a CP2000 notice should consult with a tax attorney to advise and assist them with the CP2000 process, especially if their response has been denied. Taxpayers have a limited amount of time to exercise their appeal rights.
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