When the system identifies a potential mismatch, it generates a CP2000 letter. Every year, 3 million CP2000 Notices are sent to taxpayers when the IRS finds a mismatch between the income you reported and the income they received from sources like your employer or bank. Understanding the intricacies of tax law can be daunting, particularly when you’re facing a potential IRS audit. Generally, the statute of limitations for IRS tax audits gives the agency a three-year window from the date your tax return was filed (or due) to commence an audit. Joint tax returns simplify financial matters for many couples, but when your spouse’s past catches up in the form of hidden debts, your path can take a sharp turn.
I received a CP2000 notice: Now what?
Verify that all income reported by financial institutions, employers, and banks matches what you’ve declared. Accurate reporting can save you the headache of future underreporter inquiries. If you disagree with any part of the notice, explain why in detail and attach your supporting documentation to back retained earnings up your claim. Use an online fax service or mail your response to the IRS’s fax number or address provided on the notice. You can use the response form included with your CP2000 notice to formally address the proposed changes.
Do Not Ignore the CP2000 Notice
- This is one of the most common notices, as the IRS sends over six million of them out each year.
- However, in cases where your spouse hid income from you and you had no reason to know about the income, you can apply for innocent spouse relief.
- Also, include a copy of the notice and any schedules from your tax return that relate to the proposed changes.
- The notice will show the proposed balance due (tax + interest, and possibly penalties).
If you do not respond, the IRS will send out letter 3219A Notice of Deficiency. Yes, you’ll need to pay interest and most likely penalties as well. Interest is charged on any additional tax from the due date of the return, so by the time you get a CP2000 (often a year or more after filing), some interest has already accrued. The CP2000 notice includes interest up to a specific date, and more interest will accrue until you pay the balance.
Things to Know Before Responding to an IRS CP2000 Notice
Our team of tax attorneys has extensive experience challenging CP2000 notices, both administratively and through litigation in U.S. Tax Court, which has saved our clients millions of dollars in proposed tax assessments. We invite you to review some of our CP2000 case results below. Before you file your tax return, make sure you have all form 1099s from all brokerage accounts. Then, enter all necessary information regarding whether the basis was or was not reported to the IRS (this information is specified on the form 1099B). Should you receive a notice from the IRS, reach out to your tax professional immediately.
What Documents You’ll Need to Assess Agreement
I am writing in response to the CP2000 letter I received dated DATE for tax year YEAR. After carefully reviewing the notice and comparing it with my tax records, I AGREE/PARTIALLY AGREE/DISAGREE with the proposed Payroll Taxes changes for the reasons explained below. Remember, an IRS underreporter notice is just an IRS proposal, not a final bill or an audit. It only addresses specific discrepancies in income reporting.
Let’s say you drove for a ride share company and they sent the 1099 to the IRS. You can claim expenses related to milage and other costs incurred while you were working. To do this, you will generally need to amend your original tax return and include a Schedule C to report the income and expenses.
- Some tax professionals recommend submitting this, but others disagree, and the answer is often contextual.
- This notice outlines the proposed amount of additional tax you may owe, including interest and possible penalties.
- If you agree with the proposed changes, the process is straightforward.
- Understanding the specifics of the notice is crucial for formulating an appropriate response and addressing any concerns raised by the IRS.
- Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.
- With proactive communication and cooperation, you can navigate the CP2000 Notice process and resolve any issues with confidence.
If the taxpayer’s documents agree with the proposed IRS changes, then the taxpayer should complete the response section of the notice and return it to the IRS. The taxpayer can then either pay the full amount of tax or request an installment agreement or payment plan. To contest the notice, gather all relevant documentation that supports your original tax return. This might include W-2 forms, 1099 forms, receipts, or other financial records. It is advisable to speak to an experienced tax attorney at this point.
I hadn’t included the documentation from my RSU sales in my 2021 taxes because I had been selling on vest (resulting in zero/minimal taxable gains). Your tax bill will continue to exist, and it will also continue to accrue interest. The IRS will review your situation every few years, and if your finances improve, the agency will demand payment. A CP2000 notice is generally less severe than an audit or tax bill.
What to Do When You Receive a CP2000 Notice
Alternatively, you can fax your notice to the fax number in the top right corner of the letter via a fax machine or an online fax service. We’ll get to work responding to the IRS, and creating all supporting documentation, by the deadline stated on your notice. If you disagree with the amount the IRS claims you owe, be sure to hang onto the CP2000 notice and contact our experienced tax lawyers right away. Every CP2000 notice includes an AUR control number, referring to the Automated Underreporter (AUR) function the agency uses to identify potential discrepancies.
