How to Respond to an IRS Notice

Or more specifically the most common IRS Notice, A CP2000 Notice. A CP2000 notice is a letter you receive from the IRS, proposing you pay an additional tax liability based on information received from third parties. The IRS computers process all the W2 forms and 1099 forms received from employers, retirement accounts, and stocks you may have sold, and matches this information with the income reported on your tax returns. If the computer believes there is a discrepancy, it automatically generates a notice proposing additional tax. You can then respond to the notice with an explanation to dispute the additional tax proposed.

How Common Are CP2000 Notices?

CP2000 notices are the most common type of notices the IRS sends out. More than five million of these notices get mailed out to US taxpayers each year. A very large portion of these notices are incorrect. It is very important to review the notices and to respond accordingly.

How Serious Are These Letters?

The letter can be very serious if it proposes a large balance due. Oftentimes, the proposed balances can be explained very easily, but it can be very serious if you do not respond to the notice.

Where Does The Information Come From Regarding The Notice?

The information shown on the CP2000 notice comes from third-party sources, from whom you receive money. In the US, employers, banks, stock brokers, and other sources are required to issue information returns to each person who receives money from them each year. These information returns, such as W2s and 1099 forms, are required to be submitted to the IRS. The CP2000 notice assessments are always based on information returns received from third parties.

How Long Do I Have To Respond To The CP2000 Notice?

The notice states that you have 30 days to respond. However, you can call the phone number on the notice and request a 30-day extension. In addition to the 30-day extension, the IRS generally allows a 30 day grace period for mailing your required documents, on top of the due date that is stated on the notice.

What Happens If I Just Simply Do Nothing?

If you do not respond to the CP2000 notice, the IRS will issue a Notice of Deficiency. You will then need to file a petition with US tax court to dispute the notice, which is a much more risky and costly process. Therefore, it is very important to respond to the notice as soon as possible and to address all the items shown on the notice. If you do not respond to the notice of deficiency that was issued subsequent to the CP2000 notice, then the proposed balance would become a bill with no more opportunity to dispute.

A response to a CP2000 notice has to be in writing. The best way to respond to the notice is to address every single issue listed on the notice, stating whether you agree or disagree with each issue, and also make sure to provide documentation to substantiate your position.

Should I Call the IRS Myself?

You can call the IRS yourself. However, the IRS expects you to provide a written response to a CP2000 notice in a substantial majority of the cases. Most IRS representatives in the automated underreported unit will not be able to make the corrections you are requesting over the phone.

Is It An Audit?

A CP2000 notice is technically not considered an audit. However, if the IRS continues to disagree with you, they will issue a Notice of Deficiency and you may have to file a petition with tax court to dispute the notice. This means the notice can turn into a full audit if the IRS continues to scrutinize the disputed amount and then, the case will be assigned to an IRS appeals officer to try to resolve the matter.

What Penalties Might I Be Facing If My Tax Return Does Not Match Income Information The IRS Has?

If the amount the IRS is proposing to assess exceeds $5,000, the CP2000 notice will automatically include a 20% accuracy-related penalty. The penalty can also be disputed, even if you agree with the other adjustments on the CP2000 notice.

Can I Contest The CP2000 Determination?

Yes, you will always have the opportunity to contest the CP2000 notice. This will need to be done in writing and you also will have appeal rights if you continue to disagree with the IRS determination.

What Documentation Or Evidence Will I Need To Support My Claim?

It depends on the issues involved. For example, if the IRS is claiming you received a retirement distribution that was taxable, but you rolled over your retirement account to a different plan, which is not taxable, you will need to provide an explanation as well as your retirement plan statements from your old plan administrator. You will also need to provide statements from your new plan administrator to show the rollover occurred within the 60-day allowable rollover period.

Do I Need An Attorney To Guide Me Through The Process After I Have Received The CP2000 Notice From The Internal Revenue Service?

Some notices are very simple and just need a single statement or other documents of proof to respond. However, oftentimes, the disputed issues on the notice relates to a complex tax position claimed on the tax returns. In more complex notices, it is definitely a good idea to consult with an attorney to prepare the best response possible.

For more information on Responding To the IRS’ CP2000 Notice, get the information and legal answers you are seeking by calling (714) 321-3369 today.