Notice CP2000: The IRS Changed Your Tax Return
Learn What This Notice Means and How to Respond
Have you just received IRS Notice CP200? Wondering what the next steps are? To help you out, the following article outlines what IRS Notice CP2000 means and what to do if you receive it.
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 report. 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.
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.
For example, the IRS may have received a W-2 from an employer, that you forgot to report. Due to this information, the IRS has proposed a change to your tax return. Now, you have the option to either agree with the correction or dispute the notice within the deadlines given.
Why Did I Receive This Notice?
You have received this notice because the IRS has received information from a third party that is not consistent with the details reported on your tax return. For example, the agency may have received a W-2 from an employer or a 1099 from a bank or client.
Due to this change, the IRS has proposed a correction to your tax return and may have also added penalties. The 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.
What to Do When You Receive Notice CP2000
First, review the notice carefully. Make sure that the information was reported correctly and that you agree with all the corrections that have been proposed. Note that IRS Notice CP2000 is computer-generated, making it more susceptible to errors.
The issue can get especially confusing for people who have self-employment income. In fact, there are numerous Reddit threads where people discuss receiving incorrect CP2000 letters related to 1099s and self-employment income.
When you receive this notice, don’t panic and assume that you automatically owe the money. Again, make sure you review everything carefully, and if in doubt, reach out to a tax professional for help.
What 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 not only agree with the changes but the penalties attached, if any.
For example, the IRS may have just added on a late payment penalty of .5% of the unpaid tax per month. However, if the agency believes the errors were due to negligence, it may add a penalty of 20% of the unreported tax. Negligence and inaccuracy fees are two of the most common fees associated with this notice, and they can increase your balance substantially.
If you agree, you do not need to amend your own tax return, the IRS will automatically make the proposed adjustments. If you are married and filing jointly, both spouses’ signatures are required.
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, credit card, or digital wallet such as PayPal. If you pay with a third-party payment processor such as Paypal you may be subject to fees.
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 schedule payments with the Electronic Federal Tax Payment System (EFTPS). This way you can make scheduled monthly payments until the amount is paid off in full with interest. To use the EFTPS, you must enroll directly with the IRS.
- 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 refunds will be applied to your debt. CNC status may lead to further implications, and it is strongly advised you contact a tax professional before and after applying for Currently Not Collectible Status. Note the agency will resume collections if your financial situation improves.
- 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 you can visit www.irs.gov/payments or 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.
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 for payment for the taxes and penalties.
Disputing The Notice
It is possible that the Notice CP2000 you received is incorrect. As previously mentioned, 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.
You can also 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.
Address of the IRS Center you received the notice from
Your Phone #
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 will not be agreeing with the information in the IRS Notice CP2000 that was 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.
List of Supporting Documents Attached
What If You Don’t Respond?
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.
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.