What does a CP2000 letter mean?

A CP2000 letter is a notice from the IRS that informs taxpayers of an error on their tax return. It is issued when the taxpayer has incomplete or incorrect information on their tax return.

If you receive a CP2000 letter, it means that the IRS has found an inconsistency between two things or otherwise thinks something is wrong. The inconsistency is general a difference between the documents that the IRS has received, including:

1. Your federal tax return, and;
2. The income information the IRS has received by your employer, your bank, and any other third parties (i.e. W-2s, 1098s, 1099s, and so on).

The CP2000 notice is not a bill—it is in fact, a letter from the automated under reporter (AUR) unit at the IRS. To detect and stop fraud, the AUR unit’s computers automatically identify discrepancies in reported income.

Receiving the CP2000 notice could just mean that you forgot to report a source of income. It doesn’t necessarily mean anything bad. Maybe you filed your taxes before all of your income statements arrived. Or the IRS system has made a mistake. This mistake could represent a decrease in your taxes just as often as an increase.

But, the worst thing you can do when you receive a CP2000 is to ignore it, which will almost certainly result in additional penalties and interest. Here are the steps that you should take if you receive one.

How should I respond to a CP2000 letter

First of all, read the CP2000 letter that you received fully. In a section on the right-hand of the document, you will see a ‘Summary of Proposed Changes’. This is a summary of what IRS believes to be the changes to your tax filing. This includes the following info:

1. The new proposed total tax amount
2. Payments that you have already made
3. Interest you owe
4. A Proposed Amount Due, which would include the new tax amount Plus interest due MINUS payments already made

You will want to review all of your documents to compare with the CP2000. This would include all W-2s from employers, 1098s, and 1099s. Also, check for any other sources of income to make sure that the amounts shown on the CP2000 is correct.

You can order a transcript of your taxes from the IRS if you still have questions/concerns.

After reviewing your information and comparing it with the CP2000, you are left with three options:

Response Option 1: IF you find that the CP2000 information is correct

Sign the IRS document and return it to the IRS to acknowledge the new tax amount. If additional taxes are owed, the IRS will send you an updated tax bill.

Sometimes, the CP2000 letter will be accompanied with a form that lists follow up steps or alternative instructions. Be sure to follow that information.

If you owe additional taxes and are unable to pay the full amount immediately, you can set up a payment plan. There are two types of plans: a short-term plan that allows you to pay the balance within 180 days’; and a long-term plan that requires an agreed upon monthly payment.

Response Option 2: IF you do not agree with the CP2000 information

If you feel that you need to contest the proposed tax changes, you would then return the document and indicate that you disagree with the changes.

Attach a statement explaining why you disagree with the proposed tax changes. Provide any financial documentation that would support your position.

If you feel that you want to speak directly with an IRS agent about the matter, a phone number is provided on the CP2000 that you can use. But, any changes that the IRS makes must be communicated in writing.

We strongly recommend that you do not negotiate with the IRS without some input from your tax preparer or a tax attorney.

Response Option 3: IF you need more time to investigate the information

For many reasons, you may not be able to reply to the IRS within the stated deadline for response. Don’t panic. Contact the IRS office via the phone number included on the CP2000 and ask for a deadline extension.

Jeff Cohen, Attorney-at-Law, is focused on providing legal support and advice in matters such as the CP2000 notice. If you would like to discuss any communication from the IRS, contact us for a FREE phone call consultation before you respond.