Beginning of December is when IRS starts sending out underreporting notifications or most commonly known as CP2000. Technology and increase in government size has allowed IRS to dramatically increase number of these notices in recent years. According to some statistics they changed four times in past ten years. So, if you personally don’t receive one of these notices you may as well know someone who is “lucky “ recipient of CP2OOO. In any case, here is couple of pointers to help you or someone you care about.

1. Respond in timely fashion

As I mentioned earlier, IRS has been sending numerous letters to various people and this is increasing their inbound calls dramatically. If you need to get a hold of IRS this will affect you; especially when it comes to CP2000, since there is a due date by which you must respond, otherwise IRS will assume the changes they made are correct and will continue with protocol to collect your money.

2. Carefully study notice

There are only two sides to this coin. Either IRS made a mistake on their part or you truly did not report some of your income. Since they work on the first in first out basis if you wait until the last minute your case may not be resolved by the deadline. One in three cases does not result in an additional taxes owned but you still have to go through the process. Even if this additional income is truly yours it does not mean that taxes owned are correct. Your additional taxes are only based on additional income IRS has on file and you need to redo your 1040 showing expenses if you have any to arrive at correct amount.

3. Organize your respond

This is critical. You must clearly communicate your response. I would start with cover letter indicating your agreement or disagreement. Also, include all of the supporting documents you used to recalculate your 1040 and copy of the CP2000 notice. Now, this next step is very important. Label your 1040 form with” corrected for CP2000-DO NOT PROCESS”. Many tax payers make mistake of filing 1040X, but this is wrong. If you do so your return will go to the wrong department with IRS and will only complicate situation.

Hopefully this will give you some idea on what to do. Remember, the most important thing is to take control of your situation and don’t delay. If for some reason you don’t want to handle this on your own that is fine too, but a least you will know the steps your tax preparer will need to take to properly handle this situation.

For any clarification and additional questions please don’t hesitate to contact us. Good luck.