When you receive an IRS CP2000 Notice, it indicates the IRS has found a discrepancy between the income you reported on your tax return and the information reported by third parties like employers or financial institutions. Here are five important steps to follow.
1. Review the Notice and Identify the Discrepancy
The CP2000 notice will show the proposed changes, including the new tax amount, any payments already made, and penalties or interest applied. It also provides a deadline, typically 30 days, to pay or appeal the decision. Carefully review the notice and compare it with your records, such as W-2s or 1099s, to confirm the accuracy of the proposed balance. If you agree with the changes, you can pay the balance before the deadline or set up a payment arrangement (such as an installment agreement or an Offer in Compromise).
2. Gather Records and Supporting Documents
Compare the income or payments listed in the notice with your own records to identify any discrepancies. Sometimes differences may arise due to omitted income or reporting errors. If you believe the IRS’s proposed amount is incorrect, gather supporting documentation—like corrected W-2s or 1099s—to back up your disagreement.
3. Consider Representation
Dealing with a CP2000 notice can be complex, particularly if there are significant discrepancies or if you are unsure how to proceed. Consulting a tax professional, such as an enrolled agent, CPA, or tax attorney, can help you understand your options. They can represent you by filing Form 2848 (Power of Attorney), handle communications with the IRS on your behalf, and assist with negotiating payment plans or extensions if you agree with the proposed changes.
4. Respond to the IRS
You must respond to the CP2000 notice by the stated deadline to avoid additional penalties or interest. If you disagree with the proposed changes, your response should clearly outline your position, reference any supporting forms, and explain the documentation you’ve provided. If you disagree with penalties, you can argue for a reduction or waiver. Always request an appeal if the IRS disagrees with your response.
5. Pay or Appeal – Know Your Rights
If you agree with the notice, you can pay the balance through a single payment or set up a payment plan. However, if the IRS rejects your response, you can escalate the issue by formally appealing through the IRS Office of Appeals. This involves filing a written protest that explains why you disagree and includes any supporting documentation.
If the issue is not resolved after the appeals process, you can take your case to U.S. Tax Court. You’ll need to file within the timeframe specified, typically 90 days from the date of the final IRS notice. Consulting a tax professional during this process can improve your chances of a favorable outcome.
