What does it mean to get a CP2000 notice from the IRS?

On Behalf of | Aug 6, 2022 | Tax Audit

The vast majority of taxpayers don’t get audited. Of course, if you’re one of those who do, that hardly matters.

However, there are notices that the Internal Revenue Service (IRS) sends taxpayers that can lead to an audit if not handled properly. One of those is a CP2000 notice, which is also known as an underreporter inquiry.

What causes a CP2000 notice?

The IRS sends out a CP2000 notice if a taxpayer reports less income than the IRS shows that they earned based on 1099 and W-2 forms. It could also be that income seems to be missing from a tax return or that deductions or credits are higher than the IRS shows.

It’s important to understand that these notices are generated automatically based on the information the IRS has in its system. Just because you get one, that doesn’t necessarily mean you owe more taxes.

How you respond is key

It’s crucial, however, to take these notices seriously and respond to the CP2000 notice with the information requested by the deadline provided. The first step is typically to contact your tax preparer, if you have one. If not, you’ll need to go through all of your documents (and maybe look for additional ones) and determine whether you do indeed owe more money.

You may agree with the IRS determination and pay the amount owed, as well as possible penalties. Don’t file a new return, though. If you can’t pay the amount you owe all at once, you can ask to pay in installments.

You may find that you underreported income but not by as much as the IRS says you did. You may also determine that you did not underreport your income and don’t owe anything.  It’s important to provide whatever your response is by the deadline. Unless you agree fully with the CP2000, you need to provide documentation showing why it’s not correct.

The IRS will either accept or reject your response. If they reject it, you can appeal their decision. If you decide to do that – particularly if you don’t have a professional tax preparer – it’s wise to seek legal guidance. You don’t want the situation to get out of hand and result in an audit that could encompass prior years’ returns and/or result in extensive penalties. The sooner you get experienced assistance, the sooner you can put this behind you.