Incorrect CP2000 Notices Are More Common Than You Think

Here are the five things you need to know to respond to the IRS when you get an incorrect CP2000 notice. These notices propose changes to your tax return when your return doesn’t match income information the IRS has on file about you (like Forms W-2 and 1099).

IRS statistics show that one out of every three CP2000 notices (also called underreporter inquiries) doesn’t result in the taxpayer owing more taxes.

But, to show the IRS that you don’t owe, you must respond effectively.

Here are the five things you need to know:

1. Respond quickly.

It takes time for the IRS to process responses. In 2011, the IRS sent more than four times the number of CP2000 notices that it sent in 2001, but it only doubled the number of tax examiners to handle them.

The result: The IRS processes a backlog of mail on a first-in, first-out basis. Respond early to avoid escalation of your situation.

2. Ask for an extension if you are within 10 days of the deadline to respond.

If you can’t respond to the IRS within 10 days of the deadline, call the IRS to request an extension. The IRS will usually grant 30 additional days without much resistance.

3. Format your response.

Because the IRS processes more than 20 million pieces of post-filing correspondence annually, it’s important to send in one organized response. Include a copy of the CP2000 notice and check whether you agree or disagree with the notice.

It’s helpful to attach supporting documentation, as well as a corrected tax return to help the IRS calculate the taxes you owe. But be sure to write “Corrected – for CP2000 response only – Do not process” at the top of the corrected return. That way, the IRS won’t process this return if it gets separated from the other response documents.

4. Do not file an amended return.

Filing a Form 1040X, Amended U.S. Individual Income Tax Return, as a response to a CP2000 notice only confuses the IRS. Why? Because Form 1040X routinely gets routed to an IRS filing unit, rather than the underreporting function at the IRS.

In the end, the IRS may not process the Form 1040X as a reply. The IRS will assess the CP2000 tax, and a mess happens when you try to correct the issue.

5. Appeal or ask for CP2000 reconsideration if you disagree with the IRS.

If the IRS received your response and issued you a deficiency notice, it’s best to appeal if you disagree. You can appeal CP2000 deficiencies to the IRS Office of Appeals, but to do so, you must appeal before the IRS issues a notice of deficiency.

Include the following statement in all responses you send to the IRS: “In the event that the IRS disagrees with this response, I request an appeals hearing with the IRS Office of Appeals.” This will protect your internal IRS appeals rights.

Find out exactly how to address a CP2000 notice.

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