What Does a CP2000 Notice From the IRS Mean for You?

Getting mail from the IRS can be a headache for even the most stalwart of taxpayers. However, a CP2000 notice is a fairly common, auto-generated letter that is typically not too troublesome to resolve. Basically, when the system finds a mismatch between your reported income and the income listed on your tax return, it generates a CP2000 letter to notify you of the discrepancy and provide a proposed solution.

This notice does not mean you are being audited. 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 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.

What to Do When You Receive an IRS CP2000 Notice

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.

You should carefully check their calculations to see if you agree or disagree with their findings, and then mark your choice on the response form. If you disagree, you need to provide evidence to support your disagreement – the more the better!

Here are a few reasons for a discrepancy:

• Your employer may have made an error in your income amount that they reported to the IRS. In this case, you will need to contact your employer for corrected documents to send with your response.
• You may be the victim of identity theft, where someone else is using your name and Social Security Number. If this happens to you, file Form 14039 (Identity Theft Affidavit) and send it with your response.
• Perhaps you filed your tax return and didn’t realize you had not received all your income records yet. In this case the CP2000 notice is likely correct.
• You or your tax preparer may have made a typo on your tax return, which was caught by the agency’s automated system.

The worst thing you can do with a CP2000 notice is ignore it. The IRS must receive your response within 30 days, otherwise they will escalate to a CP3219A Notice of Deficiency: a notification of the changes the IRS is going to make. The CP3219A now includes a penalty fee, and that can only be appealed in Tax Court.

If the IRS accepts your response, they will send you a notice that the issue has been resolved. If they only accept some of your explanation, they will send another CP2000 notice for the new tax calculation.

If they do not agree, they will send a Notice of Deficiency. You should hear back from the IRS within eight weeks, and if you do not, then you can call the contact number listed on the original CP2000 notice.

RELATED: When Should I Contact a Tax Representative?

What if I Cannot Pay the Amount Due?

If the IRS charges are correct and you now owe additional taxes, plus interest, this can cause a lot of stress. No one wants to receive an unexpected bill, especially if they cannot spare the funds to pay it.

If you are in this situation, don’t panic. There are options available to help you. If you try to ignore it, though, interest and penalties will continue to accrue, which highlights why it’s best to deal with the bill right away. Your options for action may include:

• Request an Installment Agreement payment plan by completing Form 9465 and then pay off your debt on a monthly basis.
• Request a Currently Not Collectible status for some temporary relief (but know that you still owe the IRS a debt that needs to be resolved eventually).
• Request the IRS to accept a lower amount via an Offer in Compromise. This route can be a lot of work to prove why the IRS should accept a lower amount from you, and they may reject your offer, but you need to decide for yourself if it is still worth trying or not. To help make the best possible decision, you might want to contact an experienced tax attorney for advisement.

Tax debt can quickly become very stressful, because the IRS can put liens on your property, garnish your wages, and even foreclose on your home. It is important to take care of your tax debt with the IRS so that the situation doesn’t get worse.

RELATED: What Can Maryland Do if I Owe Taxes?

Are You Sure This Isn’t an Audit?

A CP2000 notice is sometimes referred to as a “paper audit,” but really it is just a correction of your tax return.

If you’ve received a CP2000 notice, it’s a good idea to check federal tax returns from other years, as well as state tax returns, to see if that same mistake is present. If it is, you should file an amended return to get this resolved. There are no penalties or interest for an amended return, but a CP2000 notice of an amount due will also have interest due.

Underreporting taxes, or making continuous tax return errors, can lead to an audit, so if you need to amend any returns it’s better to do that than risk an IRS audit. An audit could potentially lead to a Tax Negligence finding, which can incur serious fees.

For honest errors and unintentional ignorance, it’s unlikely that an audit will lead to a tax fraud conviction. However, if an audit leads to findings of tax fraud or evasion, it can potentially lead to a prison sentence.

It’s possible you may not need the services of a tax attorney for simple IRS audits. However, an experienced attorney can sift through all your documents and put together the best case to show the IRS that you made honest mistakes and are taking action to correct them.

RELATED: Tax Audit Representation

S.H. Block Tax Services Can Provide the Help You Need

We understand how stressful receiving a CP2000 notice can be, especially when you are not a tax expert who routinely deals with the IRS. If you owe a significant sum that you cannot pay, or you are worried that other tax return mistakes could trigger an audit, keep in mind that we are here to help!

For any questions or concerns about your taxes, you can fill out our online form or call us at (410) 872-8376. Our team is highly experienced in dealing with the IRS and can help you navigate these unfamiliar requirements, so you don’t have to worry about wage garnishment or property liens.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.