Getting a CP2000: Notice of Under Reporting of Income
Every year the Internal Revenue Service reviews every tax return filed to check it for accuracy errors. This process ensures that taxpayers are paying the proper amount of tax and including all sources of income. If the IRS finds any discrepencies in their records, a CP2000 notice will be issued.
The IRS Analysis of Tax Return
The first step in the IRS’s analysis is to compare what a taxpayer reports on their tax return to what the IRS has on file under their Social Security Number or the Individual Taxpayer Identification Number (ITIN). The IRS gets income information directly from the sources of income, either your employer, Social Security Administration, pension plan, or retirement.
If the IRS determines that the taxpayer did not report all reported income on the return, the IRS will issue a CP2000 notice. This notice typically comes two years after a taxpayer files a return. For example, in the fall of 2019, many taxpayers are receiving CP2000s for the tax year 2017. In our office we see all sorts of situation arise with missing income; these issues range from forgetting about the second part-time job you had for four weeks in February to the 401(k) withdrawal you took before your 60th birthday to help cover a sudden surprise expense.
Notice of Under Reporting and Understanding the CP2000
Receiving a CP2000 may not mean you owe additional taxes. It is simply giving you notice that there was a difference between what you reported and what the IRS received from your income sources. The IRS gives you time to respond to the notice if you wish to challenge what the notice is reporting. Typically, you have 30 days to respond either by agreeing to the notice or by not agreeing and providing some explanation as to why you think the IRS is in error.
If you agree that you made a mistake, you can agree to the changes suggested in the notice and send in a check for the amount proposed on the CP2000. If you cannot afford to make just a one-time payment, the IRS does have other payment options at your disposal.
Disputing the Changes
If you disagree with the proposed change to your tax return it is best to contact a professional to help you draft your response and gather what proof you may have so that you can put forth your best effort to get
things corrected to the proper amount. Even if you are in the right with your dispute, failure to provide the proper documentation and/or give a complete and precise explanation can result the assessment of the proposed changes.
Often, the taxpayer had enough taxes withheld from the income to cover the additional income that was not reported, but since they didn’t report the full amount of actual income they had, it initially they got a sizeable refund when they first filed their return. In situations like this, taxpayers may have to pay back that refund plus any additional taxes, penalties, and interest. Interest and penalties are retroactive to when the original tax was due.
The most important thing when getting a CP2000 notice in the mail is to not panic, contact a tax professional and go over what your options are with that individual.
Arthur Rosatti, Esq. is a licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. If you have concerns about your tax liabilities, making estimated tax payments, or correcting your withholding, schedule an appointment with our office.