What Is A CP2000 Notice From The Internal Revenue Service?
A CP2000 notice is a letter you receive from the IRS, proposing you pay an additional tax liability based on information received from third parties. The IRS computers process all the W2 forms and 1099 forms received from employers, retirement accounts, and stocks you may have sold, and matches this information with the income reported on your tax returns. If the computer believes there is a discrepancy, it automatically generates a notice proposing additional tax. You can then respond to the notice with an explanation to dispute the additional tax proposed.
What Is Considered Unreported Income?
The internal revenue code defines income as funds received from any source, worldwide. There are specific exceptions for these funds. Unreported income is any money received that is considered taxable, that was not reported on tax returns.
How Common Are CP2000 Notices?
CP2000 notices are the most common type of notices the IRS sends out. More than five million of these notices get mailed out to US taxpayers each year. A very large portion of these notices are incorrect. It is very important to review the notices and to respond accordingly.
How Serious Are These Letters?
The letter can be very serious if it proposes a large balance due. Oftentimes, the proposed balances can be explained very easily, but it can be very serious if you do not respond to the notice.
Where Does The Information Come From Regarding The Notice?
The information shown on the CP2000 notice comes from third-party sources, from whom you receive money. In the US, employers, banks, stock brokers, and other sources are required to issue information returns to each person who receives money from them each year. These information returns, such as W2s and 1099 forms, are required to be submitted to the IRS. The CP2000 notice assessments are always based on information returns received from third parties.
How Long Do I Have To Respond To The CP2000 Notice?
The notice states that you have 30 days to respond. However, you can call the phone number on the notice and request a 30-day extension. In addition to the 30-day extension, the IRS generally allows a 30 day grace period for mailing your required documents, on top of the due date that is stated on the notice.
What Happens If I Just Simply Do Nothing?
If you do not respond to the CP2000 notice, the IRS will issue a Notice of Deficiency. You will then need to file a petition with US tax court to dispute the notice, which is a much more risky and costly process. Therefore, it is very important to respond to the notice as soon as possible and to address all the items shown on the notice. If you do not respond to the notice of deficiency that was issued subsequent to the CP2000 notice, then the proposed balance would become a bill with no more opportunity to dispute.
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