TL; DR

Meaning: The Internal Revenue Service (IRS) sends this notice when a discrepancy is found between your tax return and the information they have on file. This may mean that your tax bill will be higher or lower. It may not change it all. 

Next Steps: If you disagree with the notice (either fully or partially) you can compile and send a response to the IRS with documents supporting your stance

What to Do: You'll need to state whether or not you agree with the notice. You can mail the form to the return address using the envelope provided or fax your response. If you owe additional taxes, you can make a payment if it's possible to do so. If you can't make a full payment, you can request to pay off the amount in installments or via a 180-day payment plan.

Request for Additional Information to Process Your Return

An IRS notice CP2000 is a letter generated by the automated underreporter or AUR at the Internal Revenue Service. The IRS receives information about your income from various sources like employers and banks throughout the year. This information is reported on forms like W-2s and 1099s. The AUR system automatically compares the income reported on your tax return with the information the IRS has on file. If there's a mismatch between the two sets of information, the AUR program flags your return for further scrutiny.

What Is a CP2000?

A CP2000 notice is an official letter you receive from the IRS to inform you about a mismatch between the income you reported on your tax return and the information they have received from third parties like employers, banks, and financial institutions.

Common Reasons For Receiving a CP2000 Notice

A CP2000 notice doesn't necessarily mean you owe more taxes. It could also mean you overpaid and are due a refund. Here are a few reasons why you may receive a CP2000:

Missed Income

If you filed your tax return before receiving all your income statements (like W-2s or 1099s) from employers, banks, or other institutions. This could happen if you file early to get a refund sooner.

Forgotten income

You simply overlooked a source of income, freelance work, side gigs, or online marketplaces.  Alternatively, you might have neglected to report interest earned on savings accounts or investments, or forgotten to declare miscellaneous income like prize winnings, unemployment benefits, or rental income.

Errors in Reporting

If you're self-employed, you might have made mistakes calculating or reporting your self-employment tax. This includes Social Security and Medicare taxes that employees typically have withheld from their paychecks.

As you know, there are many deductions and credits available, but claiming them incorrectly can trigger a CP2000 notice. If you claimed a deduction or credit you don't qualify for, made a math error when calculating deductions or credits, or didn’t have the proper documentation to support your deductions or credits, you may get a notice. 

IRS Error (Less Common)

While less frequent, the IRS's data processing system might contain errors. This could involve typos in your Social Security number, transposed numbers on your income statements, or processing glitches.

Understanding the CP2000 Notice

Page 1: CP2000 Notice Overview

• Header: This section will prominently display the IRS logo, the title "Notice CP2000" along with the tax year in question. Your taxpayer identification number and the notice date will also be located here.
• Discrepancy Notice: This section informs you that the IRS has identified a difference between the income you reported on your tax return and the information they received from third-party sources like employers, banks, or financial institutions. The notice will specify whether this discrepancy might result in a change to your tax amount (owed or refunded).
• Proposed Adjustments: The IRS will outline the proposed changes to your tax return based on the information they have. This will include details like:
  • Amounts you reported on your original return.
  • Amounts reported to the IRS by the payer (employer, bank, etc.) with details like type of document (W-2, 1099) and their identification number.
  • The proposed changes to your income, tax liability, credits, and any interest or penalties that may apply.

Page 2: Responding to the Notice

• Instructions and Options: This section provides clear instructions on how to respond to the CP2000 notice. You'll typically have a few options:
  • Agree and Pay: If you agree with the proposed adjustments, the notice will include instructions and deadlines for settling any amount owed.
  • Disagree and Respond: If you believe the IRS is mistaken, you'll be informed on how to respond with documentation explaining the discrepancy.
  • File an Amended Return: The notice might also mention the option to file a corrected tax return (Form 1040X) if you discover errors on your original return.
• Contact Information: This section will provide contact information for the IRS if you have any questions or require further assistance regarding the CP2000 notice.

Page 3: Additional Information (Optional)

This page might contain supplementary information depending on the specific reason for the CP2000 notice. It could include details like:

• Explanation of Discrepancy: The IRS might provide a brief explanation of the potential reason for the mismatch between your return and their records.
• Your Records: The notice could remind you to keep accurate and complete records for tax purposes.

Additional Tips and Information

• There have been instances of fake CP2000s being sent to victims via email. You can forward this to phishing@irs.gov if you suspect you've been targeted.
• Remember that the IRS offers several compromises and payment agreements, including temporary delays if you are unable to pay the additional tax. 
• If you don't want to deal with the CP2000 on your own, a tax professional can contact the IRS on your behalf. 

In Summary

Receiving any notice from the IRS is very daunting, but it can’t be ignored.  It's crucial to respond to any notice, including a CP2000 notice, by the deadline mentioned in the document. Failing to respond could result in the IRS finalizing the proposed adjustments and potentially lead to further penalties and interest charges. If you're unsure how to proceed, you can always Contact us today here at LedgerFi.