Understanding the IRS CP2000 Notice

Receiving a notice from the Internal Revenue Service (IRS) can be an intimidating experience. One of the most common notices taxpayers receive is the CP2000, which can often be a source of confusion and anxiety. This article provides a comprehensive overview of the IRS CP2000 notice to demystify the process and empower taxpayers with the knowledge to respond effectively. 

What is an IRS CP2000 Notice? 

A CP2000 notice, also known as an underreporter inquiry, is a notification from the IRS that the income and/or payment information they have on file from third parties does not match the information reported on your tax return. It is crucial to understand that a CP2000 notice is not a bill, nor is it a formal audit. Instead, it is a proposal to adjust your income, payments, credits, or deductions, which may result in additional tax, a refund, or no change at all. 

The CP2000 notice is generated by the IRS' Automated Underreporter (AUR) program. This sophisticated system compares the information on your tax return with information returns filed by employers (Form W-2), banks (Form 1099-INT), brokerage firms (Form 1099-B), and other third parties. When a discrepancy is detected, the AUR system flags the return and a CP2000 notice is issued. 

The Legal Framework Behind the CP2000 

The IRS' authority to issue CP2000 notices and make adjustments to a taxpayer's liability is grounded in the Internal Revenue Code (IRC). Several key sections of the IRC provide the legal basis for the underreporter program: 

•Internal Revenue Code § 6201 (Assessment Authority): This section grants the Secretary of the Treasury the authority to make inquiries, determinations, and assessments of all taxes. This includes the authority to assess taxes based on information from third-party returns. 

•Internal Revenue Code § 6212 (Notice of Deficiency): While a CP2000 is not a statutory notice of deficiency, it is a preliminary step in the process. If the taxpayer does not respond to the CP2000 or if the disagreement cannot be resolved, the IRS may issue a formal notice of deficiency, which grants the taxpayer the right to petition the U.S. Tax Court. 

How to Respond to a CP2000 Notice 

A timely and accurate response to a CP2000 notice is essential. The notice will specify a date by which you must respond, typically 30 days from the date of the notice. Here are the steps to take: 

Step 1: Review and Compare 

Carefully review the CP2000 notice and compare the information with your own records. The notice will detail the proposed changes and the information the IRS used to determine them. Identify any discrepancies and gather supporting documents, such as corrected Forms W-2 or 1099, bank statements, or receipts. 

Step 2: Reply to the Notice 

You have three primary response options: 

1. You agree with all the proposed changes. 

2. You disagree with all the proposed changes and have supporting documentation. 

3. You agree with some of the proposed changes but disagree with others. 

You can submit your response and supporting documents to the IRS through one of the following methods: 

•Online: The IRS Document Upload Tool is the fastest and most secure way to submit your response. An access code is provided on the notice. 

•Fax: You can fax your response to the number provided on the notice. 

•Mail: You can mail your response to the address provided on the notice. 

Potential Penalties 

If the CP2000 notice results in an underpayment of tax, the IRS may impose an accuracy-related penalty under Internal Revenue Code § 6662. This penalty is typically 20% of the portion of the underpayment attributable to negligence or a substantial understatement of income tax. 

•Negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the tax laws. 

•A substantial understatement of income tax occurs if the understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000. 

In cases of a gross valuation misstatement, the penalty can increase to 40%. 

Your Rights as a Taxpayer 

Throughout the CP2000 process, you are protected by the Taxpayer Bill of Rights. As outlined in IRS Publication 1, Your Rights as a Taxpayer, these rights include: 

•The Right to Be Informed: You have the right to clear explanations of the laws and IRS procedures. 

•The Right to Quality Service: You have the right to receive prompt, courteous, and professional assistance. 

•The Right to Challenge the IRS’ Position and Be Heard: You have the right to raise objections and provide additional documentation. 

•The Right to Appeal an IRS Decision in an Independent Forum: If you disagree with the IRS' determination, you have the right to an administrative appeal. 

The Appeals Process 

If you disagree with the IRS' decision after you have submitted your response, you can request an appeal with the IRS Independent Office of Appeals. If you are unable to resolve the matter with the Office of Appeals, you may have the right to petition the U.S. Tax Court. 

Conclusion 

Receiving an IRS CP2000 notice can be unsettling, but it is not a cause for panic. By understanding the purpose of the notice, the legal framework behind it, and your rights and responsibilities, you can navigate the process with confidence. Remember to review the notice carefully, respond in a timely manner, and provide clear and accurate information. If you are unsure how to proceed, consider seeking assistance from a qualified tax professional. 

To learn more about how to fix your IRS issues, click the link to watch the free video, The Ultimate Guide to Solving Your IRS Tax Problems: 

https://lp.constantcontactpages.com/sl/aaYxHYQ/guideirstaxproblems