IRS CP2000 Notice: What does it mean for you?

A CP2000 notice contains a “proposed amount due” and there is a possibility you will receive it. When the amount you reported on your tax return does not match the information that the IRS received from other sources such as your bank, employer, and other parties, an IRS CP2000 notice will be automatically triggered and will be sent by a computerized system. Normally, after the original return due date, the IRS matches return with information from third parties. 

As a matter of fact, over 6 million CP2000 notices are sent yearly by the IRS. This notice will give you a chance to respond to your discrepancy and it will also propose a change to your tax payments or credits. You must respond to avoid future penalties and interests even if you will agree or not. 

You should not panic since there is a possibility that you may not owe anything. What if you weren’t able to report the ROTH distribution you took? Maybe you are insolvent and can prove that you had a cancellation of debt (1099-C) but wasn’t able to report it. 

This IRS CP2000 is neither an audit notice nor a bill. It can address two concerns: an overpayment or an underpayment, and an underpayment usually concerns us. An error caused by a third party, the IRS computer system, or even you are the possibility of the cause if there is a discrepancy. Normally, if the tax preparer forgot to include all the income, the taxpayer moved and did not get the document that the client of the tax preparer did not provide (such as 1099), are some of the reasons a CP2000 notice happens. 

What should you do if you receive one?

Before responding to the notice through a response form that the IRS sent, you should read it carefully to know whether you agree to the calculation or not. There are instructions included on what you should do if there is no response form attached to the notice you received. You are given 30 days from the date of the letter to respond to it and 60 days if you are out of the country. This means that you don’t have 30 days to mail it but within 30 days the response must be delivered. You can call the number provided on the notice if you can’t meet the deadline to ask for additional time to send a response. The IRS will send out a letter 3219A Notice of Deficiency if you will not respond. 

How will you know if you agree? 

Before concluding that the figure presented on the notice is correct, you must double-check your financial activity for the year cited. 

• Collect and organize necessary documents including your past tax returns, your W-2s, and your 1099s to know of you forgot any income and if your credit and deductions are accurate. 
• Obtain a copy of your return from the IRS by ordering from the website or calling 800-908-9946. By completing and sending Form 4506-T, Request for Transcript of Tax Return you can get a copy of your return from the IRS. You can also have a tax pro do this for you. 
• To see if the tax due amount listed on the CP2000 is correct, you or your tax preparer should calculate your taxes. This is if the information that come up after reviewing your documents is different from the information you initially used to determine your taxes. 

If you agree to the CP2000 Notice:

• Using the envelope that the IRS provided, you can sign the form and check the box indicating the agreement and send your response to the IRS with payment (if applicable).
• Follow the instructions on the notice if a form was not included. 
• You can also fax your completed form. There is a number provided in the notice. Don’t forget to include your name, social security number and tax year on each page. 
• Both you and your spouse must sign the notice if you are married and filing jointly. 

What if you agree but cannot pay the entire amount?

There is a high chance that penalties and interest will keep on growing if you will be unable to pay immediately. You have options especially if the amount you owe is a huge one, consider discussing it with a tax pro. 

• You can request a monthly installment agreement by sending a completed Form 9465, Installment Agreement Request when you send your CP2000 Notice response or you can also visit the IRS website to learn how. 
• If you are unable to pay the IRS anything currently, you can request Currently Not Collectible Status. The IRS will keep on checking on you to see if your financial situation improved. The interest will continue on accruing. 
• Seek an Agreement that is called an Offer in Compromise. Through this, you can be permitted to pay less than you owe in a monthly payment or lump sum. You can seek help from a tax professional to know how much you can offer and to see if you qualify.