• Alex Nkrumah, EA

CP2000 Notice from the IRS

What is a CP2000 Notice from the Internal Revenue Service(the IRS)? It is a way of the the IRS informing a taxpayer that a difference or differences exist in the income(s) and other information that were reported to the IRS by the entities that paid (or received from) the taxpayer verses the information that was(were) actually filed by taxpayer in his or her tax return for the year in question. The IRS will provide you with contact information and a choice to either agree to changes made to your return or to disagree with the usual tax literature, page to sign, date and return and a return envelop.

The IRS receives filed reports of payments made to taxpayers in the form of wages(W2s or 1099-Misc), securities transactions(1099-Bs), dividends(1099-Div), and other information reports from entities required to file by January the thirty-first of each year to the IRS. These filed reports are matched with the recipients' filed returns, and any differences between the two are isolated and investigated.

There are a number of reasons why these differences occur and we will discuss some of such reasons.

The CP2000 notice can be resolved and cleared with the IRS promptly by mailing answers to the address provided in the notice, faxing or calling the telephone numbers provided with your proofs within the 30 days of the date of the notice in the first instance.

1)Begin with a review of all the facts:

Review the notice: the year the notice relates to, all the information in the notice e.g. incomes you made per the notice and check against all the facts such as income sources such as W2s, 1099s etc., that you received and their amounts. It is possible for you to have missed a W2 or 1099 if you worked many jobs or did any 1099-B transactions and moved from your last known address before the following January when it would have been mailed to you by your employer or 1099 payer, for instance.

2)Having ascertained the facts of the CP2000 and your tax return as filed your next step is, "what is the issue here"? The CP2000 will clearly state the issue.

3)Next will be the tax law but at this point IRS is not looking after your interest so don't just trust that what they say you owe is indeed owed. The IRS will quote you the relevant tax law which gives them the authority to assess additional taxes but not necessarily the facts that benefit you. It is up to you to disprove them.

4) Analyze and prepare your argument. Did the IRS miss something that if included will remove or reduce liability?

If the IRS information is correct after doing your research and it turns out that you owe additional taxes the IRS may charge you in addition interest and penalty for the underpayment. If you have documented allowable deductions that were not already claimed for the year in question you can bring to the attention of the IRS to offset the additional taxes; you will not need to amend the return but forward to the IRS agent you will be dealing with. If any reported information is incorrect you can contact the filer of such information to the IRS to correct the information with the IRS and send you a copy of the corrected inform. You will submit the facts of the error and the disposition to the IRS. For 1099-B trade discrepancies check to make sure the IRS did not leave out the cost basis of your transactions to overstate gain on a sale. In this instance it helps to produce the purchase transaction information to reduce your gain if it is available. Note that even if you're unable to completely offset any additional tax liability for the CP2000 year, there is always a possibility that a review of a prior year or two may lead to a refund if the return(s) can be amended to take advantage of legitimate, deductible expenses not previously deducted, which can mitigate tax liability.

On the other hand the CP2000 deficiency might just be a minor issue that may even result in a tax refund to you.

I want to point out the importance of keeping track of all your incomes and deductible expenses records and ensuring that your tax return filed will reflect all incomes and deductible expenses to avert any situation like this. Secondly, even if your employer is not reporting your income to the IRS, the tax law of the United States of America makes it clear that ALL incomes received in any year MUST be reported on your tax return. This way you will not get any surprise mail from the IRS two years after filing.

If you have any specific question(s) you can email us at admin@taxeallc.com with your question(s).

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