What is an IRS CP2000 notice?
IRS sent you a letter proposing changes to a tax return you filed AND charged additional tax, penalties and interest. This is actually a type of IRS audit initiated by the automated under reporter unit (AUR).
If you get one of these notices, give it your immediate attention – there are deadlines that if missed will cause you to lose some of your rights. If that happens it will be more difficult to challenge the proposed assessment.
Before explaining the reason you received this notice, let’s discuss briefly the different types of IRS audits. It is my firm belief that a taxpayer should not be his/her own representative for an audit. Hire a professional with experience dealing with IRS to represent you. Someone who knows what to say AND what not to say to the revenue officer.
Types of audits:
- Correspondence Audit – This is an audit that is performed via mail. The auditor sends a request for documentation supporting an item claimed on your return. In response, your representative sends the documentation back to the auditor by mail. A well-written response accompanied by strong documentary evidence is critical because if the auditor’s curiosity is satisfied, this ends the audit.
- Field Audit – The auditor visits the taxpayer’s home or office to review tax records. Now, I think this is a bad idea – if the auditor sees or hears something questionable on-site, they can expand the scope of the audit to include additional items or more tax years. I offer to meet the auditor at my attorney’s office for client I represent.
- Office Audit – The taxpayer’s representative brings records to the IRS office for the auditor to review.
- National Research Program (NRP) audit – You don’t ever want to be selected for this audit! Every single line of your return is examined. You must prove each item in detail. Any item you cannot prove, you lose. IRS does these audits to gather data which helps them to optimize their audit selection process. The only good thing here is that these audits are statistically rare.
- The CP2000 or Automated Under Reporter (AUR) audit.
Despite the word “automated” these CP2000 audits do require IRS personnel for processing. However, they are initially created by the IRS’s massive computer system. The computer compares your filed return to the information documents reported on your SSN by 3rd parties – like W2s and 1099s. If there is some income item missing from the return, you will likely get a CP2000 notice.
What are the most common omissions?
- Cancellation of Debt income – reported on 1099C
- Brokerage Account Capital Gain/Loss Transactions – reported on 1099B
- Non-employee Compensation – reported on 1099NEC
- Gambling Winnings – reported on 1099G
Basically, IRS adds the income amount shown to your tax return WITHOUT the benefit of any offsetting expense deduction. That is why your timely response is critical. The assessment is often overstated egregiously. If you don’t respond within the 30-day period additional tax, penalty and interest is assessed to your account.
People often think that filing an amended return is the appropriate response here – it is not. The CP2000 notice actually contains language stating that an amended return is not required. However, you can attach an UNFILED amended return as an exhibit to the CP2000 response. Do this only if you feel the response will be more clearly communicated by including it.
I respond to these notices often, so if you have any questions or concerns, reach out by scheduling a free consultation with me. There is a link on this post that will take you to my online booking page where you can schedule a time that is convenient for you. You can also visit www.taxcrisisrescue.com and click the button that says “schedule a consultation.”
Now, the best defense to an additional CP2000 assessment is to never get the notice in the first place. We offer an IRS account monitoring service which offers many benefits – one of which is potentially preventing a CP2000 notice from being sent to you. Using specialized software we extract the same income data that IRS has on your account then compare it to your filed return. If any anomaly is detected the software alerts us. The alert typically occurs months before IRS sends out the CP2000 notice which gives us time to file a proper amended return. In this case, we are filing the amended return before the CP2000 notice is even created. The timely filing of an amended return avoids the egregious over assessment of tax, penalty and interest as well as saving the effort required to defend a CP2000. That way, you win the battle even before it starts!
If you want to know more about any IRS compliance issues go to www.taxcrisisrescue.com and click the button that says “Schedule a Consultation.”