What is a CP-2000 Notice?

If you have received an IRS CP2000 Notice, the IRS has reviewed your tax return and has reason to believe that you have underreported income on your tax return.  Because failure to address this letter may have serious and adverse consequences, including potential bank levies, wage garnishments, and tax liens, it is essential that you respond to the letter in a timely and careful manner.  Below are a few tips on the CP2000 process.  As always, you should consult with a tax attorney to examine your rights and determine how to proceed.

1. Your right to be heard.

Before the government can take your property, you have the right to be told what property is being taken and why. A CP2000 is the way the IRS gives you that notice. The purpose of a CP2000 is to inform you that the IRS disagrees with the way that your tax return was filed, and to explain how the government will change your return. (Tax practitioners refer to a CP2000 as a NOTICE OF PROPOSED CHANGES). Most of the time, this means that that the IRS believes that you will owe additional tax.

The most important thing to know about a CP2000 is that it is not always accurate. A CP2000 is created using information reported on you from third parties, such as banks, employers, contractors, and even other taxpayers. If the information they share is wrong, the notice will reflect that inaccuracy. You have the right to explain to the government why the information presented is wrong, or whether special consideration should be taken because of mitigating circumstances.

2. Your must act in time.

Take care to assert your rights. If you do nothing to dispute the information provided in the notice, the government will assume that the information reported about you is correct. You have until the RESPONSE DATE to contact the IRS and explain and document why they are wrong. (You can find the RESPONSE DATE on your notice under “What you need to do immediately”, right where it says, “If you don’t agree with the changes”.) If the government does not hear from you, or if you cannot provide documentation showing why the information is incorrect, then the IRS will issue a STATUTORY NOTICE OF DEFICIENCY. This document is a final determination of the amount of tax you owe, and can only be challenged in court within 90 days. If you have received a letter from the IRS, the worst thing you can do is ignore it and hope to resolve the matter “next tax season” or “when you have money to pay the amount due”. Responding to the notice on time is critical to preserving your rights.

3. Gather your evidence.

Typically, showing that a proposed change is in error requires presenting evidence. Things like bank statements, receipts, and business ledgers are all useful evidence that help show the third-party information is wrong. But don’t feel limited to those records, any document you have that proves your position is helpful. Be sure to send the government only copies of your documents (no originals), and keep a copy of what you send for future reference.

You can also contact the third party directly and request they correct any errors. For example, if an independent contractor has filed a 1099 stating you were paid $1,000, but you were really only paid $500, the contractor can correct the 1099 with the IRS by filing a corrected form. Even when a third party agrees to correct a statement, you are still responsible to send a response to the IRS.

3. We can help.

For more information on the IRS tax audit process and to learn how an IRS Tax Audit Lawyer can help you with your letter, please call the phone number above or click here to contact us.