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The CP2000 notice stream: What it means for you
Every year, the IRS matches tax returns with billions of what’s known as information returns (such as Forms W-2, 1099, etc.) that it gets from third party employers and other payers (such as banks). The IRS is looking for errors and missing income when it compares the information returns to the filed tax returns.
When the IRS sees a discrepancy between what was reported in the tax return, it can send out a standard set of “underreporter” notices seeking correction of the tax return. Here's what to expect and how to handle each one.
The IRS sends CP2000 notices at three times in the year
The IRS generally sends three waves of CP2000 notices for each tax year, according to the following schedule.
If you filed your tax return before the April 15 deadline, you could get a CP2000 notice in November or December of the same year. For example, for a 2018 tax return due in April 2019, the IRS would send CP2000 notice in late 2019.
If you filed your tax return between April 15 and October 15, you could get a CP2000 notice the following March or April. For example, for a 2018 tax return with a valid extension due by October 15, 2019, the IRS would send CP2000 notices in the Spring of 2020.
If you filed your tax return after October 15, you could get a CP2000 notice the following June or July. For a 2018 tax return filed after October 2019, the IRS would send CP2000 notices in the Summer of 2020. The IRS also some notices to taxpayers with more complex issues in the last wave.
An exception for the 2020 COVID-19 pandemic
During the 2020 and 2021 COVID-19 pandemic, the IRS didn’t follow the normal CP2000 schedule. During that time, the IRS issued millions of CP2000 notices, but they were sent at different times during the year. However, in 2022, the IRS went back to its normal three waves of CP2000 notices.
CP2000 underreporter notices
A CP2000 is not technically an IRS audit. However, it follows most of the same rules as an IRS audit. In the CP2000, or underreporter, process, taxpayers receive an initial notice, followed by a series of subsequent notices based on the responses and outcome of the inquiry. The series of notices is called the CP2000 notice stream. If you receive a CP2000 or CP2501 notice, you can receive these notices, based on your responses and results of the inquiry:
There’s a possible error on your tax return
Notices CP2000 and CP2501: The primary underreporter notice is the CP2000 notice. But the IRS can send a CP2501 preliminary notice before a CP2000 notice to notify you about underreporting. Most taxpayers get the CP2000 as their first notice. Both letters tell you that items on your tax return didn’t match information from third parties (such as Forms W-2 and 1099) filed with the IRS under your Taxpayer Identification Number (TIN).
The CP2000 notice:
- Shows the item(s) the IRS says don’t match what you reported on your return
- Proposes more taxes (and possibly penalties) the IRS thinks you owe
- Gives you 30 days to respond (or 60 days if you live outside the US). If you don't respond, the CP2000 letter serves as your 30-day letter, meaning you have 30 days to respond and request an appeal with the IRS Independent Office of Appeals.
A CP2501 is a precursor to a CP2000 notice. If you received a CP2501, but did not respond within the deadline, the IRS will send you a CP2000 with the proposed amount due.
You should respond to CP2000 and CP2501 notices and state whether you agree or disagree. If you disagree, submit an explanation to the IRS with documentation that supports your position. (Do not submit original documents to the IRS.) The IRS will respond to your submission.
Letter considering your response
Letter CP2000 (recomputed): If you send a response disagreeing with the CP2000 notice and the IRS agrees with your response, the IRS will adjust the original proposal with a new CP2000 notice. The letter recomputes taxes and/or penalties. This notice also serves as a 30-day letter.
The IRS is charging you the taxes
Statutory Notice of Deficiency – Letter CP3219: If you don’t respond to the CP2000 notice (agreement or disagreement), or the time elapses for your response, the IRS will assess, or charge, the additional taxes and penalties it proposed in the CP2000 notice.
The IRS sends a certified letter – CP3219 – to begin assessing this tax. Once the IRS sends this letter, you have 90 days to appeal the IRS decision with the US Tax Court if you don’t agree with the IRS.
Sometimes, taxpayers receive this letter prematurely (for example, before the IRS considers their response to the original CP2000 notice). In this case, you can ask the IRS to reconsider the proposed assessment. This process is called CP2000 reconsideration.
Letter CP2005: Many taxpayers disagree with the CP2000 notice and propose that the return is correct. If the IRS accepts your explanation and your return as filed, you'll receive a no-change letter. This is the end of your CP2000 inquiry.
Tax assessment notice
Notice CP21E or CP22E: This notice assesses the additional tax, penalties, and interest to your account. That means, if you owe more taxes because of the CP2000 inquiry, this notice is your tax bill.
Respond to your CP2000 promptly
If you and the IRS don’t reach an agreement or if you don't respond to a CP2000 notice, the IRS will issue a Statutory Notice of Deficiency.
The IRS is charging you the taxes
Statutory Notice of Deficiency – Notice CP3219A: Also called a 90-day letter, this notice gives you 90 days to appeal the IRS decision with the US Tax Court if you don’t agree with it. If you fail to petition the Tax Court within the 90-day period (or 150 days if you live outside the US), the IRS will assess the tax shown in the 90-day letter, and you will get a bill for the taxes due.
Respond to your first CP2000 notice by the deadline to avoid getting a 90-day letter and tax bill. If you don’t respond in time, you can ask for CP2000 reconsideration after the IRS has assessed the taxes.
If you received a notice and want help looking into it, make an appointment today. We can help get to the bottom of your issue and work with the IRS on your behalf.
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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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