The CP2000 Notice is one of the most common IRS notices and is issued when there is a discrepancy between the income reported on a taxpayer’s return and what third parties (like employers or financial institutions) reported to the IRS. This notice typically deals with unreported or underreported income, such as wages, interest, dividends, or retirement distributions.
Key details of the CP2000 Notice:
- Explanation of Discrepancy: The CP2000 includes a comparison of the income amounts reported by third parties and the taxpayer’s return. It will show where the IRS believes income was omitted or misreported.
- Proposed Changes: Based on the discrepancies, the IRS will propose adjustments to the tax return, which may result in additional taxes owed, interest, and penalties.
- Response Required: Taxpayers are given the opportunity to respond, either agreeing with the proposed changes or disputing them by providing documentation that supports the original return. The notice includes instructions for both options.
- Consequences of Inaction: If the taxpayer does not respond by the deadline, the IRS will assume that the proposed changes are correct, and the taxpayer will owe additional taxes, penalties, and interest.
The CP2000 is not an audit but a proposed adjustment based on income reporting discrepancies. It’s crucial to respond promptly to avoid further complications.