A CP2000 notice is issued when the Internal Revenue Service (IRS) suspects that a federal income tax return has either under reported income, taken excessive credits or deductions, or both. The notice will document the IRS’ proposed changes to the tax return, the reasoning for the changes, and will propose a new balance they believe the taxpayer owes after accounting for these changes. The form will also set a deadline for a response, typically 30 days after the date of the letter. If you have received a CP2000 notice from the IRS, you have three possible responses:
1)The first option is to accept the IRS’ proposed changes and assume the new liability. If a taxpayer agrees with the IRS proposed changes, they need to sign the CP2000 form indicating agreement with all changes and return it to the IRS.
Once the taxpayer has signed the CP2000 agreeing to the changes, he or she will not be able to dispute the liability at a later date unless the IRS makes further changes regarding that particular tax year. Keep in mind that even though the taxpayer cannot dispute the liability at a later date, the IRS can still reassess the balance in the future if they believe they have cause to.
The CP2000 will also request payment to be accompanied with the taxpayer response, but the taxpayer does not have to include any payments.
2)The second option is to disagree with some of the IRS proposed changes. The notice requests that the taxpayer provide documentation supporting his or her position. The IRS will review the response and determine if the proposed changes were made in error. If they determine that the proposed changes were not made in error, the IRS will send the taxpayer a notice for the taxes owed. The taxpayer can choose to file a timely petition with the U.S. Tax Court if he disagrees with the CP2000 notice.
3)The third option is to disagree with all of the IRS proposed changes. The process is the same as disputing some of the IRS proposed changes. Again, if the IRS disagrees with the taxpayer’s position, they will issue a notice for taxes owed at which point the taxpayer can choose to take the dispute to the U.S. Tax Court.
If a taxpayer does not respond in a timely fashion to the CP2000 notice, the IRS will simply make the assessment and send the taxpayer a notice for the taxes owed.
The likelihood of reversing the IRS’ determination without definitive supporting documentation is slim. In addition, many of the tax settlement options the IRS provides are not available if there is an outstanding CP2000. If you have received a CP2000, you need to carefully consider your response as it may limit the options available to you.