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8 things you should know about IRS CP2000 notices
There’s no reason to panic if you receive an IRS CP2000 notice. It looks and acts like an IRS audit, but you’re not being audited. Receiving this computer-generated notice in most cases means that the IRS is questioning whether you underreported your income on your filed tax return.
The IRS may mail you a CP2000 letter when the information you reported on your filed tax return doesn’t match the information the IRS received from third parties. This includes payer information from employers and financial institutions.
There is no reason to panic if you receive a CP2000 notice from the IRS. The notice is sometimes also called an “underreporter inquiry,” because it indicates that the IRS thinks you have underreported your income. The notice includes proposed changes to the tax return you filed.
Here are 8 things you should know when you get an IRS CP2000 notice:
1. CP2000 inquiries are not IRS audits.
Receiving an IRS CP2000 letter doesn’t mean the IRS is auditing you. The notice is automatically generated when the information you reported on your return doesn’t match up with what the IRS has. This may be because of a simple error you made that you can easily correct when you respond to the CP2000 with the corrected information. If you are under audit, the IRS auditor would review your books and records to figure out the correct tax you owe.
2. A CP2000 notice is a proposal, not a bill.
The CP2000 notice will show information about the discrepancy between your tax return and information on file with the IRS. It also proposes added taxes, interest, and penalties you may owe if you agree that you incorrectly reported your income. The notice contains a response form you can use as part of your reply to the IRS.
3. You can call the IRS to respond.
The IRS can accept your reply by phone or in writing. Calling the IRS works well if you have a simple explanation for the discrepancy. However, it’s a good idea to follow up in writing using the CP2000 response form that was included with your CP2000 notice. That way, you’ll have a paper trail showing that you responded before the deadline. If you don’t want to sit on hold with the IRS, you can also ask a tax pro to work with the IRS on your behalf.
4. IRS Account Transcripts give you a wealth of information.
If you receive an account transcript from the IRS it will contain IRS codes. Here’s what some of the codes related to Notice CP2000 mean.
- Code 922: This is the latest CP2000 activity on your account.
- Code 290: If the IRS has assessed taxes on your account, you’ll see this code with the amount you owe. But the transcripts won't show the specific items the IRS changed on your original return.
- Code 240: This may show accuracy penalties on your account transcript.
- Code 196: This code shows interest on the tax assessment, along with the corresponding CP22 notice that the IRS sent (code 971).
5. CP2000s sometimes result in a refund.
If you review your return and figure out that the IRS owes you a refund, you can request one in your CP2000 response. A common example is if you didn't compute your investment losses on IRS Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. The losses reduce the taxes you owe, which might mean you are due a refund from the IRS.
6. You can appeal the IRS decision if you request an appeal in time.
Send your response to the CP2000 notice within 30 days of the date on the notice. CP2000s, like audits, follow deficiency procedures, which allow you to appeal before you have to pay the taxes. Make sure you request an appeal in your first CP2000 response in case the IRS disagrees with your response.
7. The IRS can supply copies of CP2000 notices.
If you lost your CP2000 notice, contact the IRS to ask for a copy of the notice. You can also authorize your tax professional to receive a faxed copy of the notice and communicate with the IRS on your behalf.
8. You can take steps to avoid future CP2000 notices.
Here are a few steps you can take to avoid receiving CP2000 letters in the future:
- Keep records of your income from all financial institutions and employers.
- Be sure to record all your income on your tax return.
- Gather all your income statements before filing your return.
- Verify the income statements you receive from all third parties, including employers, mortgage companies, banks, and other financial institutions.
- Closely follow IRS instructions for reporting your income, expenses, and deductions. Make sure your income is reported on the correct line item on your return.
- If you need to change your filed tax return, file an amended return as soon as possible before you receive a CP2000 notice. If you’ve already received a CP2000 notice, don’t file an amended return as a response. Instead, use the response form provided in your CP2000 notice.
What to do if you’ve received a notice
At Jackson Hewitt, we have 40 years of expertise to help you manage your tax issues. Whether simple or complex, our team of licensed professionals are trained to work directly with the IRS, while keeping you updated every step of the way. Start for free today and learn about how we can help resolve your tax issues.
About the Author
Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.
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