Anything you get in the mail from the IRS besides a tax refund probably isn’t a letter you want to receive. One such letter is the Notice of Unreported Income, known to many as “CP2000.” The purpose of this notice is to inform you of the IRS’ assessment that you did not accurately report all of your income for the previous tax year. It is NOT a bill nor is it an ironclad assessment of tax obligations—including interest and penalties—you ultimately owe. It is not even a formal audit.
Why Would the IRS Send a CP2000?
The IRS typically sends several million of these notices each year. The reason you received one is that the federal agency believes, from the information it gathered elsewhere, that you did not accurately portray your income. The IRS might have received the information from your employer or bank. The discrepancy usually reveals itself through one or more 1099 forms you’ve submitted. The tool used by the IRS to determine possible underreporting of income is the Automated Underreporter Program, a computer program.
This notice might have to do with stock sales, contributions to flexible spending accounts and other benefits packages, income from side hustles, real property sales, and so much more. While the IRS is often correct in the assertions included in a CP2000, it is incorrect more often than you might think. The notice might request additional taxes and interest the IRS alleges you owe. The IRS might take a long time to send you a CP2000, during which a substantial amount of interest might have accrued.
Should You Respond to a CP2000?
Yes, you should. The worst thing to do after receiving a letter from the IRS is to ignore it.
What’s the Best Way to Respond?
The best way to respond to a CP2000 depends on whether or not you agree with the IRS’ assessment. If you look at the notice and think, “Oops, I actually did make a mistake,” your best option might be to pay the money requested by the IRS. The notice will provide instructions for paying, of which there are multiple options. To limit your interest charges you should send your payment as soon as you can.
If, however, you think the notice has incorrect information, you need to formulate a game plan. The notice should have included materials to mail back that indicate your desire to contest the allegations. You’ll need to send a signed statement explaining why you don’t agree with the assessment. Additionally, you need to start gathering documents that support your position. For instance, if the income is due to a stock or real estate sale, you will need documentation to substantiate your basis in the property sold.
Regardless of the nature of your response, it’s well worthwhile to have experienced legal counsel help you properly respond. There could be a substantial amount of money at stake, and one mistake could put you in a poor position with the IRS.
Attorney Robert V. Boeshaar focuses on helping taxpayers and businesses resolve issues with the Internal Revenue Service. Whatever you’re dealing with, there is a way out that preserves your dignity and wellbeing. Schedule your phone consultation today.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
Latest posts by Robert V. Boeshaar Attorney at Law, LL.M.,PLLC (see all)
- Reduce Your Taxes: How to Identify Taxable and Non-Taxable Income - September 16, 2024
