A notice from the IRS can worry most taxpayers. A CP2000 notice is a notification from the IRS that the income or payment information does not match the tax information provided in the taxpayer's return. If the notice is about underreported or unreported income, it could result in a tax increase.
What is an IRS CP2000 – Notice of Unreported Income?
An IRS CP2000 notice typically means that the information submitted to the IRS does not match the taxpayer's return. This may be due to a discrepancy in the amount of income reported, an unreported source of income, or other differences between the taxpayer's return and IRS records.
According to the IRS, CP2000 notification information may include:
Amounts declared in the initial or amended taxpayer's return
Amounts declared to the IRS by the payer
Name of the payer, identification number, type of document issued (W-2, 1098, 1099), and tax code
Proposed changes to the taxpayer's income, taxes, credits, and/or payments.
Response form, payment receipt, and envelope.
The difference may relate to an administrative or accounting error, a forgotten source of income, or a person who misinformed the taxpayer by mistake or fraud. For example, an employer may have made a mistake entering an employee's social security number, or someone may be using someone else's social security number. This could result in declared income to the taxpayer that he/she is not aware of.
Next Steps after Receiving an IRS CP2000 Notice
The notice provides basic information for responding to a CP2000. You should read the notice carefully to understand what it says, where the unreported income comes from, and how it can affect tax payments.
The IRS notification may have a response section or may provide instructions for responding. If the taxpayer agrees with the notification, the taxpayer can respond accordingly and sign the notice (with the signatures of both spouses if they are married and file jointly).
The IRS recommends that you respond to the CP2000 notification within 30 days of the notification date for early resolution (or 60 days if the taxpayer resides outside the United States). If the IRS does not get a response by the response date, it can send a Statutory Notice of Deficiency.
Unreported income can have consequences beyond paying additional taxes. Unreported income may incur late fees or change the entire tax return (including payment, refund, and tax rate). Contact your tax attorney if you have questions about a CP2000 notice or if you disagree with the notice.
Check Your Tax Return and Previous Tax Records
After getting a CP2000 notice, we recommend that you consult your previous tax return to identify any problems. You can also check your employer's records, financial service providers, mortgages, and any other source of income to make sure your information is accurate and up to date. Also, do not forget to get in touch with a tax professional to help you out.
CP2000 Notice and Tax Increase
The undeclared income statement may result in a tax increase. Typically, the tax increase will result in accrued interest on any outstanding balance until full payment is made. If you cannot pay the full amount, contact your tax advisor or try to establish a payment plan with the IRS.
If you agree with the notice, the IRS will make corrections, so you don't need to file a correct return. However, unreported income may affect other changes to your tax return, including credits, deductions, or the application of certain deductions. Discuss your options with your tax attorney after receiving a CP2000 IRS notice.
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