Legal Tidbit: Taxation – IRS CP2000 Notice

When the IRS receives tax returns and statements from employers and banks, this information is entered into their databases. It’s then compared for accuracy. When a discrepancy is found, a CP2000 is issued. This form allows the taxpayer to either correct their taxes by paying the difference or explain the inconsistency. Mistakes do happen. It’s easy to rush to file your return and, in the meanwhile, not realize that you’re missing a document. There could also be a reason why this income wasn’t submitted. Keep in mind that this document isn’t a bill – it’s the start of a discussion between yourself and the IRS. In other words, don’t panic!

The IRS gives you 30 days from the date mailed to have your response in their hands. It’s important to know that they are not referring to postmark dates. If the of time given isn’t long enough, you can call the IRS and request an extension for no greater than 30 additional days. If this extra time still isn’t enough, and you’ve got the extenuating circumstances that justify it, you can request even longer. Keep in mind that this is handled on a case-by-case basis. If a tax payment is owed, but you don’t have the means to pay it immediately, you can also contact the IRS by phone to request payment arrangements.

There can be a long delay between when you submit your return and the receipt of the CP2000. This comparison doesn’t happen immediately – even though taxpayers have their W2s and other documentation early in the year, employers and banks don’t always send their portion to the IRS as quickly. Once everything is received, the documentation still has to be entered into the IRS databases and compared. Prior to issuing the CR 2000, the information is also double-checked. It can take greater than 12 months for this entire process go run it’s course and notification to be issued.

If you’ve received a CP2000, you should act quickly and honestly. Compare the information on the “Shown on Return” column to that in the “Reported to the IRS” column. Did you report the income? In the case that it wasn’t reported, was it an oversight? If you owe the additional tax payment, then check box A and return with check/money order payable to the United States Treasury. If there’s another reason why you didn’t report the income or earnings, then you’ll need to explain that on the form. There is always a chance that the discrepancy may be an oversight on the behalf of the IRS. In those situations, you can call them to let them know where you reported this information on your tax return. Anything else is best handled via mail or fax.

The best way to handle a CP2000 is by trying to avoid causing one in the first place. It’s best to keep good, detailed records of your income throughout the year…especially if you have more than one job or source of income. Keeping accurate records on your end will help you to know if you are missing anything or filing your documentation prematurely.