How to Handle IRS CP2000 Notices (Underreporter Inquiry)
CP2000 notices, at a glance:
- You get a CP2000 notice when your tax return doesn’t match income information the IRS has about you.
- CP2000 notices aren’t audits, but they work the same. It’s important to fully respond by the IRS deadline.
- You have the right to contest penalties and appeal a CP2000 determination. But you must ask.
You can get expert help resolving your CP2000 notice.
What you need to know about CP2000 notices
When your tax return doesn’t match income information the IRS has (like Forms W-2 and 1099), the IRS sends a notice. It’s usually a CP2000 notice, also called an underreporter inquiry.
This notice basically proposes taxes, and possibly penalties, you might owe for missing income on your return. Sometimes, the IRS can question deductions or credits you took that don’t match information statements filed under your Social Security Number.
But CP2000 notices are computer-generated and may not be right. You might not owe the full amount – or anything at all. In fact, many taxpayers who get a CP2000 notice don’t end up owing anything.
What to do if you get one of these notices? There’s a process. You or your tax pro will need to investigate the issue more and get back to the IRS within a certain amount of time. And, if the IRS says you owe penalties, that’s something you’ll need to take care of, too.
Here’s how it works.
How to respond to a CP2000 notice
1. Evaluate your situation and decide on the right response.
Start by validating that you owe more taxes. To do that, you’ll need to determine whether you correctly reported the income in question on your tax return. Here’s how:
- Gather all the information statements under your Social Security Number. These are the forms you get at tax time reporting your income for the year (like W-2s and 1099s). Compare those statements with your tax return to see whether you left any income off your return.
- If so, you’ll need to properly calculate any additional tax that you may owe. Keep in mind that you also might have additional deductions that factor into the new tax calculation.
- Determine whether you agree, partially agree or disagree with the CP2000 notice.
2. Respond to the IRS.
- If you agree with the notice, send the CP2000 response form back to the IRS with payment (if applicable). If you can’t pay the entire amount, you can request an installment agreement with your CP2000 response.
- If you partially agree or disagree with the CP2000 notice, you’ll need to compile and mail a response to the IRS with documents proving your position. You can attach a corrected return to help clarify your position, but don’t file an amended return. If the IRS accepts your explanation, the IRS will correct your return.
- You can also address any proposed penalties in your response to the underreporter notice.
- If the IRS rejects your response, consider appealing the decision.
3. Prevent future underreporting and resulting penalties.
- After about eight weeks, call the IRS or analyze your transcripts to confirm that the IRS resolved your issue.
- To avoid penalties on more recent returns, analyze your information statements to determine whether you made the same error in other years. If necessary, you can file an amended return on these years to avoid the additional 20% accuracy penalty.
For future returns, gather all your information before filing. You can request your information statements from the IRS (called wage and income transcripts). But beware, wage and income transcripts don’t contain all your Forms W-2 and 1099 until late May.
How to get expert help
Your H&R Block tax professional can help you investigate the cause of your CP2000 notice and communicate with the IRS.
Gather these six items for your appointment
- A copy of your IRS notice
- Any responses you’ve already sent to the IRS
- A copy of the tax return in question
- Copies of your tax returns from the year before and the year after the tax return in question
- Additional deductions or expenses related to the underreported item (example: costs of stock for unreported stock transactions on Form 1099-B)
- Any underreporter notices you’ve received in the past
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