You may be surprised to receive an IRS CP2000 notice, but it is worth your while to learn what it is and how to respond. The CP2000 notice is a notice that the IRS’s Automated Underreporter (AUR) program issues when there is a difference between income reported by third parties like employers and financial institutions to the IRS and that reported on your tax return. This piece will guide you step by step on how to handle such a notice.
Understanding the CP2000 notice
A CP2000 notice typically indicates that the IRS discovered unreported income, perhaps from multiple sources, including wages, independent contractor payments, the sale of stocks, or other activities. The notice will indicate the suggested changes to your tax return, as well as any additional tax, interest, and penalties owed. It is best to read the notice carefully to observe the discrepancies and changes being suggested.
Steps to take upon receiving a CP2000 notice
1. Evaluate your situation
- Gather information: Collect all relevant documents, including W-2s, 1099s, and any other income statements to compare with your tax return.
- Determine accuracy: Verify if the income in question was indeed unreported or if there was an error in the IRS’s information.
2. Respond to the IRS
- Agree with the notice: If you accept the changes, sign and mail to the IRS a completed response form with payment of any tax due.
- Disagree with the notice: If you do not agree, send a complete response with supporting evidence for your view in hopes of supporting your position. You may also object to the suggested penalties.
3. Consider hiring professional help
If your situation is complicated or you need assistance with a response, you are required to hire a tax expert.
Potential consequences of not responding to the notice
Not responding to a CP2000 notice will have severe consequences, such as extra charges, penalties, and even wage garnishment. The IRS will implement the recommended changes if you do not respond, and you will lose your right to dispute the notice.
Timeline for response
You are given 30 days within which you must respond to a CP2000 notice. If you allow it to lapse by then, you may be sent a Statutory Notice of Deficiency (Letter 3219), which will limit your right of appeal. But you may still avail yourself of the services of an expert in taxation to navigate the process.
To resolve a CP2000 notice, immediate action should be taken to avoid unnecessary inconvenience and penalty. With the knowledge of the notice, gathering necessary documents, and taking additional action, you can simply resolve the issue. Professional help, if required, can be used to safeguard your rights and resolve your tax issues in the proper way.
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