A CP2000 notice is an IRS letter telling you that the IRS has adjusted your tax return and you owe money. It will usually contain the heading “Notice of Proposed Adjustment for Underpayment/Overpayment.”
Receiving a CP 2000 notice can be scary, but the worst thing that can happen is right there in the notice. It tells you the maximum additional tax owed and the potential penalties. In many cases, you may not even owe how much the IRS says or anything at all. This posts outlines what you should do when you get a CP2000 notice.
What does an IRS CP2000 notice do?
A CP2000 is also known as an automated underreporter notice or notice of underreported income. It means the IRS believes you didn’t report part of your income and owe more tax.
A CP2000 notice is sometimes referred to as a paper audit. This is because everything happens by mail. You get the notice, then either pay or send in documents that support your original tax return. However, unlike full audits, the IRS has already made a decision. It isn’t requesting that you send additional information — just a payment.
How can you verify if a CP2000 notice is legitimate?
A CP2000 notice will come by mail on official IRS letterhead. Check out this IRS video to see an example and learn more about what to do.
As of writing this post, the phone number on the notice will likely be 1-800-829-8310. If you see a different number, first search to verify that it is an IRS phone number or call the general numbers listed on the IRS website.
CP2000 Notice Basics
Why does the IRS Send CP2000 notices?
If you receive a CP2000 letter from the IRS, it means your tax return did not match the information reported to the IRS by third parties. The most common situation is that you either forgot a W-2 or 1099 or did not enter the same amount as shown on the form. A backdoor Roth conversion can also sometimes trigger a CP2000 notice.
The IRS is not asking you to amend your return. It has already made changes. The notice will detail the exact amount of the change and the source of the IRS’s information.
How does the IRS pick who gets a CP2000 notice?
CP2000 notices are almost entirely automatic. The IRS tries to match up what’s on your tax return with information it gets from third parties. Remember that when someone sends you a tax form, it doesn’t just go to you. They also report your Social Security Number and what they paid you to the IRS.
For example, if it got a 1099-NEC saying you earned income, it will look for that income on your Schedule C. If the IRS can’t find where you reported income, it will decide you failed to report that income and send you a bill.
What happens if you get a CP2000 Notice?
Can a CP2000 notice result in penalties?
Yes, a CP2000 usually means that the IRS is saying you underpaid your taxes. Interest and penalties will likely apply.
Review your CP2000 notice carefully.
CP2000s are computer generated and are not always accurate. In addition, there is the possibility that the third party who reported the information made an error. Common errors include:
- Computational or processing error by the IRS changed the reported amount.
- The third party reported the wrong amount.
- You included the “missing” form in your tax return but the IRS computers failed to match it to the third party report.
- You did forget to include the form but you reported the income elsewhere.
- Income was reported on both 1009-MISC and 1099-K and the IRS failed to recognize this as the same income (double reporting).
- A corrected W-2, 1099, or other form was issued and the IRS used the wrong version.
Understanding the Changes to Your Return
Your CP2000 notice will explain the changes the IRS made to your return. It tells you the tax year, amount of the change, and the reason for the change.
Changes to Your [Year] Tax Return
This section will show your income and tax as you originally reported it. In the next column, it will show your income and tax as corrected by the IRS. The third column will have the difference between the first two columns.
The difference in total tax is usually the amount of income tax that you owe. This is before any interest and penalties.
Explanation of Changes to Your [Year] Form [Number]
This will list the additional income information the IRS received to make its decision. This will usually be some type of Form 1099.
You can see a summary of these forms in a table listing the payer, the amount you reported on your return, the amount on the form, and the difference. Keep in mind that the amount on your Form 1099 is not necessarily your taxable income if it is in the wrong amount, not correctly categorized, or offset by other deductions.
What to Do About a CP2000 Notice
What do you do if you agree with a CP2000 notice?
If you agree with the notice, for example if you forgot to include a W-2 from a part-time job, sign the included response form and select your payment option. You may also be able to request a first-time penalty abatement waiver.
If you can’t pay right away, the IRS generally allows installment agreements (payment plans) to resolve back taxes. Additional penalties and interest may apply until you pay off the balance.
What do you do if you disagree with a CP2000 notice?
If you disagree with the notice, there are two general courses of action.
- Return the notice with supporting documentation demonstrating why the IRS is incorrect.
- Amend your tax return.
An amended tax return would be appropriate in more complex situations where the IRS is partially correct but you have a valid way to offset all or part of the amount owed. A common example would be where you omitted 1099-MISC/Schedule C income but also have unclaimed business expenses to offset that income.
Should you agree with a CP2000 just to get it over with?
At times, you may not feel that it’s worth fighting the IRS. This is especially true if the amount they’re asking for is small. However, past tax problems can increase your risk of future audits. You may also lose the ability to request a waiver of penalties in the future if you really make a mistake.
What happens if you ignore a CP2000 notice?
If you don’t respond to a CP2000 notice by the deadline, the IRS will make the changes outlined in the CP2000 notice. They will send you a bill for the taxes, interest, and penalties and will continue their collection process until you pay.
Not responding and not paying only increase the interest and penalties that you owe. If you’re unable to pay the amount due, making payment arrangements may be able to reduce what you have to pay.
What should you include in a CP2000 notice response letter?
If you choose to respond to your notice on your own, there are a few things you should include in your response:
- A copy of your CP2000 notice so the IRS can easily match it to your file.
- A clear and concise explanation of why you believe the IRS is wrong. A sample CP2000 notice response letter might include, “I received this notice because of a missing 1099-MISC, but I should not have received a 1099-MISC because the income was also reported on 1099-K. The 1099-K income was included in my Schedule C.”
- Supporting documentation. This might include receipts, deposit records, or worksheets you used to figure your entries on your tax return.
Where do you send your IRS CP2000 notice response?
The CP2000 mailing address varies based on where you live and your specific tax issue. Always use the address on your notice. If you aren’t sure whether your notice is real or you lost your notice, call the IRS to ask where to send it.
The IRS also accepts faxes, and some tax professionals say this is a better way to respond because it’s faster and you know they got it. The CP2000 fax number also varies based on where you live and your specific tax issue.
Can you go to jail over a CP2000 notice?
A CP2000 notice generally doesn’t mean you’re at risk of being prosecuted for tax evasion. The IRS generally only brings criminal tax evasion cases for very large amounts of taxes and/or an ongoing pattern of evading taxes. If you forgot one 1099 in one year or made a mistake when you filed, you probably don’t have anything to worry about other than interest and penalties.
Keep in mind that if you are worried about criminal charges, only a criminal defense attorney can handle this. Tax accountants can assist your defense attorney but can’t represent you in a criminal case or provide legal advice.
Is it possible to get more time to handle a CP2000 notice?
You will usually have 30 days from the date of the notice to contact the IRS. If you need more time to find the documents you need, you can call the IRS to ask for more time. They will usually grant one 30-day extension if your original deadline hasn’t passed.
An extension does not pause interest and penalties. You will owe additional interest and penalties if an extension causes you to take longer to pay.
Should you handle a CP2000 notice on your own?
As always, the answer is it depends. For something simple, such as forgetting to report your bank account interest, it’s probably best to just double check the math and then pay the bill. For something more complex, where you might not be sure about the calculations or potential deductions, or if the proposed penalty is high, you’ll likely want to have a tax professional review the notice before you take action.
Note: Your tax preparer may handle it for you if the notice was due to their error.