Understanding Your CP2000 Notice
You may have received an IRS CP2000 Notice Letter after filing your most recent tax return. Do not worry, this does not necessarily mean you owe more taxes to the government. This is not a bill. Rather, it is a notice that action needs to be taken to clarify your account.
The bottom line is that you have received the IRS CP2000 Notice Letter because the income and payment information the IRS has on file for your Social Security Number (SSN) or Employer Identification Number (EIN) does not match the information you reported on your tax return. This may or may not affect your tax return, each situation is different. It may cause in increase or decrease in your tax, or your tax may not change at all.
It is important to take the proper steps once you have received the IRS CP2000 Notice Letter in the mail. The steps are simple and are even outlined directly on the form. In this article, we will dissect the IRS CP2000 Notice Letter, as well as the options you have when you receive it.
Walking you Through the IRS CP2000 Notice Letter
For your convenience, we have posted an example of the IRS CP2000 Notice Letter in this article so we can walk you through the proper steps you need to take. As you will see, all personal information has been redacted.
- Page 1: This page is a summary of the Proposed Changes to your taxes based on information the IRS has received regarding your income. On our example CP2000 Notice Letter, a tax increase of $15,620 has been proposed. With penalties and interest (if paid by the due date), a total of $19,611 balance is due to the IRS. This is only if the taxpayer agrees to the proposed changes and does not have documentation proving otherwise. Note: A deadline is listed at the top and bottom of this page. You must return your Response Form by the deadline in order to avoid increased penalties and interest.
- Page 2: Some frequently asked questions are answered here. There is contact information listed at the bottom in case you have questions that are not on the FAQ sheet.
- Pages 3 & 4: These two pages are the Response Form you need to fill out and return by the deadline only if you are enclosing full or partial payment of increased taxes. If enclosing full or partial payment, you would fill out parts A-C and return to the IRS with payment.
- Pages 5 & 6: These two pages are the Response Form you need to fill out and return by the deadline only if you are not enclosing any form of payment. On this form, you have the option to say you agree with all changes, you do not agree with some changes, or you do not agree with any changes. If you do not agree with some or any changes, you have the opportunity to return this form with documentation supporting your case. Either way, you will choose your option and return to the IRS by the deadline listed on page 1.
- Pages 7-11: In our example IRS CP2000 Notice Letter, pages 7-11 comprise the ‘Explanation Section.’ In this taxpayer’s case, there are instances of Taxable Dividends and Securities that were missing from their tax return for that year. In other words, income was received but not listed on the tax return. The ‘Explanation Section’ details the specific differences for each reported source of income by outlining ‘Amount Reported to the IRS by Others’ vs. ‘Amount Included on Your Return.’ This is the most detailed portion of the IRS CP2000 Notice Letter, and is where you will look if you want to see what specific information is inconsistent.
- Pages 12 & 13: These pages outline the ‘Reasons for the Changes.’ After you have reviewed your detailed ‘Explanation Section,’ you will want to review the ‘Reasons for the Changes’ so that you understand why the IRS is proposing changes to your tax return.
- Page 14: This page includes Additional Information, including where you can seek assistance and where you can pick up forms or schedules. You’ll note a ‘Power of Attorney’ section here too. This box indicates a copy of this exact same form was sent to the representative of the taxpayer, in this case a Certified Public Accountant (CPA) with skill and experience dealing with IRS CP2000 Notice Letters.
- Page 15: This is the final page of the IRS CP2000 Notice Letter. It is a complete summary of the changes to items affected by the information the IRS received. If items are not listed on this page, they remain intact, and are correct on your return. ‘Changes to your Income and Deductions’ are outlined, followed by ‘Changes to your Tax Computation,’ and finishing with a ‘Summary of Proposed Changes’ (the same information as seen on Page 1).
We have now reviewed every portion of the IRS CP2000 Notice Letter. The important details to remember are:
• This is not a bill, rather, it is a notice that action needs to be taken regarding your account.
• Whether you agree or disagree with the Proposed Changes to your tax return, you must return Request Form #1 or #2 by the deadline listed on page 1.
• If you disagree with the proposed changes, you must collect documentation supporting your claims.
• If information given to the IRS by another party is wrong, you can contact the party directly and ask them to correct the information.
• It is not too late to hire a licensed and qualified Certified Public Accountant (CPA) to act as your Power of Attorney when dealing with the IRS CP2000 Notice Letter. A CPA can discuss your options with you, tell you specifically which documentation you need to gather, and will communicate with the IRS on your behalf.
You can gather more information on tax preparation and filing at Mycpa.net, or call Acosta Tax and Advisory at 954-674-0076 to schedule your free consultation or get help with your IRS CP2000 Notice Letter immediately.