This guide will help you understand the CP2000 notice in detail + tips to handle such notices tactfully.
When you’ve put in hours of work into preparing and filing your 1099 information forms, the only thing you look forward to is a clear report from the IRS. But those hopes are squashed quickly when the IRS hits back with a CP2000 notice.
Many businesses receive CP2000 notices and it’s a lot more common than you think. But that doesn’t make it okay to hit the snooze button on your CP2000 notice (or any IRS notice for that matter).
Ignoring your CP2000 notice could bring you penalties and worse, audits from the IRS. But let’s hold on for a minute here.
What exactly is an IRS Notice CP2000? And if your business receives one; how should you deal with it?
The following will explain in detail what CP2000 notice could mean, ways to handle it, and the best ways to address such communications.
So, let’s get to it.
What Is An IRS Notice CP2000?
CP2000 is an IRS notice generated by an Automated Under-Reporter (AUR) Control System. This system automatically reads and validates the returns you file to match the income information the IRS already has on file. If the income information you report, matches the IRS records, the returns will be processed for the next steps. If the reported information doesn’t match the information that IRS already has on file, the system automatically notifies the filer about the mismatched information by generating a CP2000.
In a nutshell, when there is an income information mismatch in the returns filed by you and the information that IRS already has on file, the AUR generates an automatic CP2000 notice.
Why Would Your Business Receive An IRS Notice CP2000?
If the income information reported on your information returns is not matching the income information that IRS already has on file, then the AUR will generate an automatic under-reporter (AUR) notice, a CP2000.
If you received a CP2000 notice from the IRS, do not panic. The IRS is merely notifying you that the information did not match. The notice doesn’t necessarily mean that the IRS is trying to fine you with penalties. It’s when you ignore a CP2000 the IRS penalizes you for willful disregard of underreporting.
What To Do When You Receive An IRS Notice CP2000?
The first thing to do when you receive a CP2000 is to not panic. Sure, when the IRS sends you a notice that your reports are incorrect, it can be overwhelming. But the IRS does not want to audit you here. It just wants to make sure if the AUR citations are valid and if you agree with such citations.
Secondly, you can start reviewing the issues flagged by the IRS. Thoroughly review the specifications laid down by the IRS and cross-check the information with the documented 1099s, W-2s, and more.
The above step will help you evaluate if there was a genuine error in reporting from your end or if the IRS sent the notice by mistake.
After you’ve evaluated the information, you can choose from the following steps to respond to the IRS.
Steps To Handle IRS Notice CP2000
- If You Agree With The CP2000 Notice
If you agree with the tax changes specified in the CP2000 notice, sign and return the response form by mail before the due date specified by the IRS. And that’s it. You have addressed the CP2000 notice.
- If You Don’t Agree With The CP2000 Notice
If you partly agree with the changes proposed in the notice or fully disagree with all the changes specified in the notice, you can do so by checking the ‘Disagree’ box on the response form. You must also provide a clear written explanation + documentation and evidence (if required) to support your claims and submit the appeal before the IRS deadline. Use Form 12203, Request for Appeals Review for this purpose.
The IRS will review your appeal and get back to you based on the case you have built up for yourself. If the IRS agrees with your response form, your original tax return will be accepted and the IRS will inform you about the same.
- If The IRS Doesn’t Accept Your Response
If the IRS doesn’t accept your response, you will receive a letter from the IRS explaining the reasons why your response/appeal cannot be accepted. Now, before you devise the next steps. Consider the following options.
You can call the IRS on the number provided in the CP2000 notice to talk to an examiner. You can resolve any issues at this point without further escalations. Most likely, the IRS staff wants to help you discuss the changes proposed in the notice. If you’re still not satisfied with the resolutions offered by the examiner, you can ask to speak to the manager.
If you’re not satisfied with the resolutions offered by the manager, you can file a petition with the U.S. Tax Court after you receive a Statutory Notice of Deficiency. Remember that at this point, any further proceedings on your tax reports or changes will be determined by the Court.
Things To Know If You Disagree With The IRS On Your CP2000 Notice
- Your reason for disagreement on the proposed tax changes must be valid and within the scope of reason. You cannot contest religious, political, moral, constitutional, conscientious, or similar grounds as the reason(s) for disagreement.
- You have to try to achieve an agreement within a limited time. You only have 90 days from the date of issuance of notice to address the notice, send your response, appeal the IRS, and file a petition with the U.S. Tax Court (if needed).
- After the 90-day period, the IRS will assess tax and penalize you on the original tax you owe.
- You can continue to work with the IRS to address the proposed tax changes even after the IRS sends a Statutory Notice of Deficiency and even after the 90-day period.
If you don’t respond to the CP2000 notice and don’t file a petition with the Tax Court within the 90-day period, the IRS is free to assess tax and penalize you for negligence.
This guide from the IRS will help you gain insights on what to do when you receive a CP2000 notice.
Alternatively, you can also find help online with tax experts at Tax1099.
Our customer success team helps 100,000+ businesses find the right solutions for their inquiries. You too can resolve any issues instantly with a simple consultation.