Oops! CP2000

It is that time of year, the CP2000 notices for 2006. They're a little late this year, but with the AMT  and rebates messes, that is understandable. This and a few more posts will cover issues that have arisen from the notices I have seen.

I call a CP2000 notice an oops! letter. After all the W-2s and 1099 have been submitted by employers and payers and most of the returns have been filed, the IRS begins matching what the payer says they paid to what we put on our returns. This isn't a problem for most of us since we report all our income. But sometimes we forget something, or it comes in after the return is filed and we never get around to amending the orginal return, or the math or data entry on the orginal return is wrong, or we delibertly leave income off the return. That is when we will get a letter from the IRS nicely telling us that we (oops) forgot something or made a mistake and here is what they think we still owe them (or they owe us.)
If you get a letter, don't panic. You have plenty of time to respond and if you need more time a polite request will do. The next thing is to take the letter to your tax professional. If you did your own return, take the time to really read the letter. Is it right? Is that your income? Don't assume that the IRS is either right or wrong until you have studied that letter. The letter will tell you exactly what was missing from the original return. If the letter is correct (and that income is not the sale of securities or properties), then all you have to do is mark that you are accepting the changes to your return and make payment arrangements and mail the letter back to the IRS. An amended return might be in order if you forgot to report a sale securities or property since your tax is based on the gain or loss on the sale and not the sale price. All the IRS has is the sale price not the taxable amount.
If you disagree with the proposed changes, then it is up to you to prove to the IRS why your return should not be changed. On the CP2000, there is a checkbox to mark that you are disagreeing. You then want to sent your documentation to the IRS with a copy of the notice.
Whatever you do, don't panic but also don't blow off this notice. It is not going away. If you don't deal with this now, you will deal with it later and in the meantime the interest and penalties will grow.

Comments

[Just got my CP2000]

What is the best course of action if I feel the information is incorrect and/or I was not in a position to pay this accordingly?

[Trish]

On the response page, pg 3, there are 3 boxes to mark; agree with changes, agree with part of the changes, or disagree with proposed changes. Mark 2 or 3 and then explain, and DOCUMENT why you don't agree. Mail that info and everything else they want (response sheet, cover letter) in the envelope provided. If it doesn't fit in that envelope, mail to the service center on the first page not where you mailed your original return. Please remember the burden of proof is now on you, so explain completely and send copies of your documentation.
If the IRS is correct but you can't pay the full amount, use the installment agreement, Form 9465, that should have been enclosed.

[R Jones]

There are more than 300 possible computer notices the IRS can send out to a taxpayer. The IRS computer system is ridiculously vast. It can generate notices on a taxpayer for a simple math or clerical error to a full on audit that determines you owe additional taxes. If you challenge one of these notices ALWAYS send your response with CONFIRMED delivery.

[Susan]

Are these ever sent by email? I dont know if I have a virus or a real notice.

[Rob]

i also received one by email today but couldn;t connect to the website so think it is a virus

[Trish]

CP2000 are not sent by email. If you receive one do not open it or click on the link. Check irs.gov and phishing for more information

[Terry]

I received a CP2000, and after review, I found I made a mistake (left off an income source). So I'll correct, but what's the chance I can get the penalties waived? I not only ommitted the income source, but I failed to report the withheld portion as well. In my opinion, it validates my position that I just made a mistake - no fraud here.

[trishmc]

You can always ask.
Trish

[Jeff]

I got a CP2000 stating that I owed $2600. In examining the notice, I found that the IRS had recorded my social security tax in my federal tax (as reported by others). I have a W-2C that shows the correct amount that my employer filed with the IRS well before I filed and I used those correct amounts...appears somehow the SS tax amount was duplicated in the Fed Tax Paid amount in IRS records.

I responded that I do not agree with the changes and sent a copy of the corrected W-2C along with a brief explanation of what I believe occured. Anything else I should do?

[Trish]

You did what you needed to do. Now you have to wait. If you get a second notice about this issue, remember it is a auto response and what you sent in may not have been posted to that computer. So respond by letter or phone to the new letter with the same info.