The CP-2000 Notice of Underreported Income is sent when the information on your tax return doesn’t match information the IRS received from a third party. Whether you agree or disagree, you should respond to this notice because it could result in a higher tax liability.
Whenever you receive a 1099, W-2, or other informational tax form, the IRS also receives a copy. If the information on your tax return doesn’t match what’s on the information form, the IRS may catch the error.
For example, your 1099 form may say you earned $9,000 in compensation from one client. If you accidentally report $8,000 of compensation from this client on your tax return, the IRS computer system may notice the discrepancy.
Fortunately, the IRS can also catch over-reported income in these cases. The CP-2000 Notice could result in a lower tax liability if you mistakenly overstated your income from one or more sources.
Responding to the Notice
If you agree with the proposed changes, complete, sign, and date the respond and mail it in to the IRS. If you filed a joint return, both spouses must sign the response form.
Be aware of how these changes will impact your tax liability. The IRS expects payment within 30 days if you have an additional amount due. If you made a big error, you could end up owing significantly more in taxes, and you may need to consider your tax resolution options.
You can also note that you disagree with the proposed assessment on your response form. Be prepared to explain why and provide any supporting documentation.
You don’t need to file an amended return if you agree with the proposed changes and there’s nothing else on your return that needs to be adjusted.
If you don’t respond to the notice, the next step the IRS will take is sending you a Notice of Deficiency. You have a limited amount of time to respond to this notice if you don’t agree with the adjustments, and the IRS will begin seeking collection of the tax liability if you don’t take action.
Contact a tax attorney if you need to dispute the tax liability or negotiate a payment arrangement with the IRS.
Get help with an IRS tax audit by calling The Gartzman Law Firm at (770) 939-7710. We can communicate with the IRS on your behalf and dispute any adjustments made to your return.