IRS CP2000 Notice

Notice CP2000: The IRS Changed Your Tax Return

Learn What This Notice Means and How to Dispute It If You Disagree

IRS Notice CP2000 is a notice of underreported income. This means that the IRS has received information from a third party indicating that you have failed to report income, and now, the agency is proposing a change to your tax return. 

IRS Notice CP2000 is not an audit or a bill, but it’s a very important IRS letter so you should make sure to respond by the deadline. To get help now, contact us at Damien’s Law today.

Key takeaways 

• CP2000 Underreporter Notice – The IRS believes you underreported your income, based on details received from third parties. 
• If you agree – Fill out the response form and make payment arrangements if you’ve incurred a new tax liability. 
• If you disagree – Write a letter to the IRS and attach documents to support your position. 

What Is IRS Notice CP2000?

IRS Notice CP2000 is also known as an “under-reporter inquiry”. That means the IRS has received information from third parties that contradicts the information reported on your tax returns, and the agency is proposing changes. 

For example, the IRS may have received a W-2 from an employer, that you forgot to report or that you entered incorrect numbers. Due to this information, the IRS has proposed a change to your tax return. 

The CP2000 notice details where the information came from and explains the proposed changes. To protect yourself, make sure that you read the notice carefully and understand both the mistake made and the penalties the IRS is proposing. Now, you have the option to either agree with the correction or dispute the notice within the deadlines given. 

Why Did the IRS Send Me This Notice? Common CP2000 Triggers

This notice means one thing – you underreported your income based on info the IRS received from other parties. Taxpayers often receive it due to the following types of issues:

• Unreported 1099 income – For instance, a 1099 received from your bank for interest or from a client for non-employee compensation. 
• Unreported or mistakes with W2 income – If you forget a W2, enter the numbers incorrectly, or file before your employer makes changes to your W2. 
• Unreported crypto transactions – If the IRS gets reports from an exchange that you should have reported crypto, they’ll adjust your return and send a CP2000. 

These notices are not always correct. For instance, if you receive a 1099-K from a payment platform and a 1099-NEC from a client who paid you through that platform, you have double-reported income. IRS adjustments in these situations are often incorrect, but unfortunately, if you’re not a tax pro, it can be challenging to explain and defend your position to the IRS. 

What to Do If You Agree With the Notice?

If you agree with the notice, there will be instructions in the notice detailing how to complete the response form on page seven. Read the notice carefully and make sure you agree with both the changes and the penalties incurred if applicable. 

If you agree, you do not need to amend your tax return, the IRS will automatically make the proposed adjustments. If you are married and filing jointly, both spouses’ signatures are required on the response form.

Before responding to the letter, review the proposed changes and the fees very carefully. Keep in mind when you fill out the response form saying you agree, this means you agree to everything. 

How to Pay a Tax Bill From CP2000 Notice

Generally, CP2000 means an unexpected tax bill. If you’ve got the resources to pay it off in full, that’s great. You can pay the full amount directly through the IRS website from a bank account, debit card, or credit card. You can also mail a payment to the IRS.

If you cannot pay the amount in full before the date listed on the notice you will have to look at the following options.

• Installment Agreement — If you cannot pay the full amount, you can apply for a payment plan on the IRS website as long as you owe less than $50,000. If you owe over that amount, you need to apply through the mail or over the phone. 
• Partial Payment Installment Agreement — This is where you pay monthly payments but are unable to pay the full amount within the collection period, or by the Collection Statute Expiration Date (CSED). The Collection Statute Expiration Date is typically ten years after the assessment date. When the CSED is reached, the remaining balance will be written off. 
• Currently Not Collectible Status — If your financial situation does not allow for you to pay your balance you can file for a Currently Not Collectible (CNC) status. This means that the IRS will not try to collect from you, but you will continue to receive an annual bill and any tax refunds earned will be applied to your debt. 
• Innocent Spouse Relief — This is only applicable if you and your spouse file a joint tax return. To qualify, you generally must establish that the un-reported income was due to your spouse and you had no reason to know about it. Then, the IRS will only hold your spouse, ex-spouse, or late spouse liable.
• Offer In Compromise – This an exception that allows you to settle with the IRS for less than the amount you owe. This is most often used after all other options have been considered. An Offer in Compromise is granted in regard to a variety of circumstances such as ability to pay, income, expenses, and asset equity.

To find more information on all payment options, explore the tax relief section of our site. You can also log in to your account with the IRS and view your payments, payment history, and contacts for more information.

What If You Disagree With the Notice?

If you disagree with the third-party information that led to the changes, you can contact the third party directly. Their information should be detailed in the notice. 

For example, if the changes were due to a 1099 that you don’t recognize, you can contact the organization that generated the 1099. If you have further questions, you can contact the IRS directly to speak with a representative. 

How to Dispute the Notice

It is possible that the Notice CP2000 you received is incorrect. The IRS Notice CP2000 is computer-generated, meaning you may owe less or nothing. 

If you disagree with the notice, fill out and complete the response form by the required deadline. Additionally, provide a statement explaining why you disagree with the notice and include any evidence to support your dispute. 

If desired, you can send a copy of a corrected tax form but do not amend your own tax form or re-submit the original copy. For example, you can send corrected versions of W-2s or 1099s related to this issue but only provide documents that support your case.

Once you respond, the IRS may ask for additional details. If the IRS rejects your response form, you have the right to appeal the decision. 

Sample Dispute Response to IRS Notice CP2000

You can use this template to write to the IRS if you disagree with your CP2000 notice. 

Date

Address of the IRS Center you received the notice from

Your Name
Your Address
Your Phone #
Tax Period
Taxpayer ID
Tax Form (For example, 1040)

To Whom It May Concern,

I have received IRS Notice CP2000 dated XX/XX/XXX, and I have reviewed the information enclosed carefully. I have completed the response form and indicated that I do not agree with the information in the notice or the penalties attached.

The reasons for which I disagree and choose to dispute the form are outlined below. 

The information in the notice stated that I failed to report ______, but this form was from a previous year and should not be included in my report for the tax period XXXX-XXXX. 

Due to this error, I do not agree with the information in the IRS Notice CP2000 in regard to my return. The calculations the IRS proposes are incorrect and do not accurately represent my earnings for this year or my tax record as a whole.

It is for the reasons outlined above that I disagree with the notice. If you have any other questions or need more information, please call or email me. 

Respectfully, 

Taxpayer Name

[Insert Your Signature and Your Spouse’s Signature If You Filed Jointly]

List of Supporting Documents Attached

Which supporting documents should you attach to CP2000?

The documents you need depend on the argument you need to make. To give you an example, let’s look at the case of this Reddit user who received a CP2000 saying that they had reported a 1099 incorrectly. 

The user received a 1099 from E-bay, but instead of reporting the revenue noted on the form, they reported the revenue after expenses. To explain the discrepancy to the IRS, this Reddit user attached a tax return that reflected the full amount noted on the 1099 form as well as the expenses they incurred to earn that income. 

Here’s a longer explanation using sample numbers. Say the taxpayer received a 1099 showing $20,000 in income, but they had $5,000 in expenses. So they reported $15,000 in income on their tax return. When the IRS noticed the discrepancy, they adjusted the return to show the full $20,000 in income for the taxpayer – thus creating a proposed tax liability. 

The taxpayer could respond by sending a profit and loss form or proof of the business expenses incurred, or like this Reddit user, they could have included an updated return. Note they simply sent this return to the IRS, they didn’t file it or amend their existing return. 

By giving the IRS the correct information, this taxpayer was able to keep their tax liability the same as it was on their original return, while also responding to the IRS’s concerns. 

What If You Don’t Respond to IRS CP2000?

Whether you agree or disagree, if you do not respond before the deadline you may be issued Letter 3219, Statutory Notice of Deficiency. This will generally be followed by a bill for the amount due. In this case, you have forfeited your chance to dispute the notice by not responding in accordance with the deadline, but you may still be able to dispute the tax due through another path. A tax pro can help you.

Make sure to contact the IRS by the deadline printed on the notice. If you don’t reach out, the agency will finalize the changes. Then, the IRS will send you a bill and demand payment for the taxes and penalties.

Timeline for Responding to CP2000

The IRS gives you 30 days to respond to this notice. If you miss the deadline and the agency’s proposed changes turn into a tax assessment, you may still have appeal rights. If you miss all of the appeals deadlines, you may still be able to pay and request a refund. 

Once you respond, the agency typically gets back to you within four to eight weeks. However, response times can vary based on staffing levels and whether or not it’s tax season.

Get Help Now

At Damien’s Law, we specialize in helping people with all kinds of tax problems. We can help you respond to a CP2000 notice, dispute tax bills that you disagree with, or set up payments for unexpected tax liabilities. To learn more and get help now, contact us at Damien’s Law today.