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What is a CP2000 notice and how is it different from an audit?

by | Jun 22, 2021 | Firm News |

A CP2000 is a notice sent to a taxpayer from the Internal Revenue Service (IRS) when the IRS has a mismatch of information about the taxpayer’s income. This mismatch occurs when the information reported by the taxpayer does not match with records sent to the IRS from a third party, such as an employer or financial institution. The notice is not a bill, but more like the beginning of a conversation.

The IRS clarifies that the CP2000 is not a formal audit. An audit is a more thorough review of a taxpayer’s tax returns while the IRS is essentially using this CP2000 notice to point out a discrepancy and ask for the taxpayer to explain the problem.

What should I do if I get a CP2000?

First, it is important not to ignore the notice. Taxpayers who do not respond can face additional fees and penalties. Next, review the correspondence carefully. It will have deadlines. It is ideal to respond within the given deadline or, again, the taxpayer face fines and penalties. This deadline is usually thirty days after the date printed on the letter, not the date the taxpayer actually received the letter.

Next, the taxpayer will generally choose one of two paths:

1)   Agree. For those who agree with the discrepancy, follow the instructions on the notice to fix the problem.

2)   Disagree. Taxpayers who believe the notice is the result of a larger identity theft issue or believe the IRS has received the wrong information from a third party can take steps to correct the error with the IRS. Those who believe the wrong information was sent may need to reach out to the third party and ask that they send the IRS the correct information. It is wise to keep the IRS notified of the process to reduce the risk of additional fines for failing to meet expected deadlines. Instructions on how to do this are contained within the notice.

If a CP2000 changes the taxpayer’s tax filings, it could increase the tax bill. Taxpayers who are unable to pay this bill have options. The right choice will depend on the taxpayer’s situation, but can include paying off the debt in smaller, more manageable payments referred to as installments or offering to pay it off in full but at a lower amount through an offer in compromise.