Getting a CP2000 notice from the IRS can be a stressful and overwhelming experience for any taxpayer. This notice, also known as an “underreported inquiry,” is issued when the information on your tax return doesn’t match what the IRS has received from third parties, like employers or financial institutions. If you’re facing this situation, it’s essential to understand what a CP2000 notice involves, how to respond effectively, and the possible consequences of not addressing it promptly. In this post, we’ll walk you through the crucial elements of handling a CP2000 notice and offer insights to help you manage this challenging process with confidence.
Pro Audit Guard Can Give You Advance Notification of Future CP2000 Notices
The IRS issues a CP2000 notice when there is a discrepancy between the income and payment information you reported on your tax return and what third-party sources, like employers, banks, or financial institutions, have reported to the IRS. This notice typically signals that the IRS suspects underreported income or discrepancies in reported figures.
Here's how and when the process generally unfolds:
1. Review and Matching Process: Each year, the IRS compares the income, deductions, and credits you report on your tax return with information it receives from third parties. If a mismatch is found, the IRS will conduct a review to confirm the discrepancy.
2. Issuing the CP2000 Notice: If the IRS believes there is unreported or underreported income, it will issue a CP2000 notice. This typically happens up to a year to 18 months after filing, as the IRS processes millions of returns and cross-references the data received.
3. Contents of the Notice: The CP2000 includes a summary of the income the IRS believes you failed to report, the proposed additional tax liability, any penalties, and instructions for responding. It also allows you to accept or contest the proposed adjustments.
4. Responding to the Notice: You typically have 30 days to respond to a CP2000 notice by either agreeing with the changes and paying any additional tax or by disputing the findings and providing supporting documentation.
Receiving a CP2000 does not mean you’re under an audit; it’s an automated process to correct discrepancies. However, failure to respond can result in penalties and additional interest on unpaid amounts, so timely action is important.
Here's How We Can Help:
1. For returns that are timely filed (By April 15) we will download your transcripts from the IRS website and compare the information reported on your tax return with the data submitted to the IRS by others to detect any discrepancies.
2. Montly Transcript Scans to identify potential IRS action on your account through the next filing deadline.
3. Advise on remediation strategies to correct other IRS issues.
4. Free Online Consultation to explain any IRS notices you receive.