Recently received the notice of a CP2000?
When you submit a return to the IRS, they have checks in place to receive the same tax information regarding your business from third parties such as banks, your employer, and other businesses.
With the help of an automated software known as the IRS’s Automated Under-reporter (AUR), the IRS is able to automatically check for discrepancies between this information received from third parties and the information contained on your tax return.
If any discrepancies are found, then the IRS will refer your tax return to a tax examiner who will evaluate the return further and compare the income, credits, and deductions you claimed to the information that the IRS has received from third parties. If the discrepancy is found to be true, then it will trigger the IRS to send you a notice of underreported income, otherwise known as a Notice 652, or CP2000.
Do not treat your notice of underreported income like a bill, but rather as a proposal or invitation to review and adjust the figures, credits, and deductions reported on your tax return. This may have both positive and negative consequences, as making those adjustments could result in a tax refund or in additional taxes owed.
A notice of underreported income should contain:
• A summary of the proposed changes to your tax return.
• The figures reported on your original (or amended) tax return.
• The figure you reported to the IRS as your income.
• Your name.
• Your identification number.
• Information about the type of document issued (for example, it could be a W-2, 1098, or 1099).
• Your tax identification number.
• Any proposed changes to the way your income and other details are reported.
• A response form.
• A payment voucher.
All these come enclosed in an envelope and demand that you carefully review all bits of information carefully.
Note that the fact that you have received a notice of underreported income does not mean you’re guilty just yet. In fact, it doesn’t mean that you owe additional amounts to the IRS. Nevertheless, you are obligated to respond to the notice.
How to respond to a cp2000 notice
When responding to a CP2000 notice, the first thing you need to do is to take note of the information written in the upper right corner of the document. If “Notice: CP200” is written, alongside an AUR control number, then the document was most likely auto-generated by the IRS’s computers.
Knowing this, you can relax knowing that the IRS is simply proposing that you make some changes to your tax return.
Responding to a CP2000 notice you agree with
If you agree with the CP2000 notice you have received from the IRS, then you should simply complete the response form, sign it with a date, and mail it back to the IRS. Note that the IRS will require your partner’s signature as well if you filed a joint tax return. Interests and penalties usually apply, however, paying the proposed amount within 30 days should stop interests and penalties from adding up.
You have the option of paying upfront or of sending the notice back to the IRS and waiting for them to make the necessary adjustments and send you a bill. Waiting may, however, increase your interest rates.
Responding to a CP2000 notice you don’t agree with
In the event that you don’t agree with the information contained in the notice of underreported income that you have received from the IRS, tick the appropriate box on the response form and send it back to the IRS alongside a written and signed statement delineating why you don’t agree. Also, include any supporting documentation that will help the IRS understand the validity of your stance.
Send the response form alongside all other supporting documents to the address listed on the notice before the due date (usually within 30 days or 60 days for non-US residents). A helpful tip is to also include your phone number and area code on the notice that you mail back to the IRS. This will enable them to contact you directly and may even shorten the amount of time it takes to resolve your issue.
Additionally, do not try to file an amended return for the year listed on the first page of the notice. The IRS will make corrections for you once they receive your information. You can, however, make amendments if you notice the same error repeating itself on your other tax returns.
What if I really underreported my income?
If you underreported your income, then the question becomes if it was an honest mistake or a deliberate act of tax evasion.
Either way, it is advisable to get in touch with a qualified tax professional to improve the chances of the IRS looking more understandably at your case.
In a nutshell, if you have received a notice of underreported income, then you should:
• Read the notice carefully, as it explains what the IRS has against you and how it impacts your tax return.
• Respond to the notice in due time regardless of whether you agree with it or not.
• Attach supporting documents.
• Contact the third party that the IRS got their information from to ask for a corrected document if you believe that the information they have reported to the IRS is incorrect. Send the corrected copy to the IRS.
• Check through and correct your other tax returns where necessary.
• Call the IRS to ask questions if there is anything you don’t understand.
• Keep a copy of the notice you have received for future reference.
• Keep an amended copy of your tax return for future reference.
• Fill out section (3) on the response form to allow someone else (such as your tax preparer) to contact the IRS about the notice.
• Order a transcript of your tax return.
• Make inquiries about what payment options are available to you and get on a payment plan if you owe additional taxes.
• Speak to a qualified tax professional.