Received an IRS CP2000 Notice? Here's What To Do Next

It’s always upsetting to receive a letter from the Internal Revenue Service telling you that you owe the government money. Being distressed after receiving a notice of underreported income from the agency is also concerning. However, the automated IRS letter, known as an IRS CP2000 Notice, is routinely generated by the IRS’s computer system and is not a federal tax bill. Taxpayers who receive a CP2000 notice should understand what it is and why it was issued before deciding how to respond.

It is not unusual for a taxpayer to receive an ICP2000 Notice of unreported income, but it can still be scary when it shows up in your mailbox. In this article, we explain what the notice is and what information it includes. We also discuss how to respond to a CP2000 Notice, including when and whether to contact an attorney.

Your first step should be to read the CP2000 Notice and learn why the IRS sent it. You should also take note of the amount of tax that you will owe if the IRS’s proposed changes are found to be correct. Unlike some other types of attorneys, most tax attorneys will charge up front for a consultation. Understanding what your CP2000 Notice means will help you decide if you need legal assistance.

What Is a CP2000 Notice?

The IRS issues CP2000 Notices when it receives information from a third party that leads the agency to believe that you had unreported income for the tax year. This information usually comes from employers, financial institutions, and other entities required to report any payments they made during the year to the IRS.

The discrepancy between the information reported by a taxpayer triggers the IRS’s Automated Underreporter Program (AUR). After the AUR identifies the discrepancy, the return is reviewed by a tax examiner. If the examiner confirms the discrepancy, a CP2000 Notice is issued.

A CP2000 Notice will not only list income the IRS believes to be missing from your federal income tax return, but it will also include a date for responding to the notice. If you believe the notice is incorrect or has been issued by mistake, you still must respond to the notice by the date listed.

As with all IRS notices, ignoring a CP2000 Notice is not an option. If you fail to respond, the IRS will treat the notice as being correct and assess any taxes, penalties, and interest that result.

The CP2000 letter is not a tax bill and does not mean you will be the subject of an IRS audit. It is an IRS proposal to adjust the income, tax payments, tax credits, or tax deductions reported on your return. The adjustments can either result in you owing additional tax or a refund of taxes you have already paid.     

In addition to information like your name, address, Social Security number, and the tax year at issue, a CP2000 Notice will include the following additional information:

• Amounts reported on the original or amended tax return
• Amounts third parties reported as being paid to you
• Information on the third-party payor
• Proposed changes to your tax return
• A form for you to respond to the notice and payment options

The CP2000 Notice will also include the interest you owe on any unpaid taxes. The interest is usually calculated from the due date of the return through a specific date. This is typically 30 days after the notice date, which is the response deadline. Interest continues to accrue until the balance is fully paid.

Responding to the Notice

Your response to a CP2000 Notice will depend on whether you agree with the IRS’s proposed correction. If you agree with the changes proposed by the IRS, sign and return it to the agency by the due date for a response. The IRS will automatically make any necessary changes. Paying the amount due on any outstanding IRS tax in full will stop additional interest from accruing.

If you agree with the proposed changes, but don’t have the money to pay your tax bill immediately, you can apply for an installment agreement payment plan. Requesting an installment agreement will require completing the response form included with the CP2000 Notice and submitting it to the IRS.

If the information on the notice is correct and you have additional income to report to the IRS, you should submit an amended return using Form 1040X, which is available at IRS.gov. Be sure to write “CP2000” at the top of the amended return.

What if You Disagree With the Notice?

If you don’t agree with any or all of the changes the IRS proposes in a CP 2000 notice, return the response form and check the box indicating that you disagree. You must also include a signed statement explaining why you disagree.

Any information in your response letter becomes part of the case record, so don’t make arguments or claims that you can’t support if the IRS asks for proof of your statements. The response should also include any additional documentation you think the IRS should consider.

When To Contact an Attorney

Most issues that result in a taxpayer receiving a CP2000 Notice can be resolved by simply providing supporting documentation to the IRS or accepting the IRS’s determination that you made a mistake. There are situations where it’s a good idea to consult with a tax attorney, including:

• The amount of tax at issue is large
• Appealing incorrect IRS determinations
• Complicated tax situations involving businesses, investments, trusts, or estates
• Adjusting your tax or financial situation to avoid future IRS issues
• Correcting mistakes you made when communicating with the IRS
• You have received a statutory notice of deficiency (CP3219A Notice)

Consulting with a tax attorney can also help negotiate with the IRS to reduce or eliminate penalties and interest resulting from unpaid taxes. A tax attorney understands the rules for when a taxpayer can claim a first-time penalty abatement or claim that penalties should be removed for reasonable cause. Taxpayers should strongly consider using a tax attorney when they need to take the IRS to court to preserve their rights. Unlike a CPA or other tax pro, a tax attorney understands the legal ramifications you may be facing.