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CPA Accountant explains Proposed Changes on IRS Notice CP 2000 | Tax Audit

IRS Notice CP 2000 proposed changes

The proposed changes on IRS Notice CP 2000 usually mean additional tax, penalties and interest. (910) 399-2705.

CPA accountants often explain IRS Notice CP 2000 to new clients. Especially the “proposed changes” part of CP 2000. I know many folks deal with the IRS themselves. So here are some tips I’ve learned over the years, presented in no particular order.  In plain English the “proposed changes” usually mean the IRS wants you to pay more tax, interest, and penalties on a tax return already submitted.

IRS Notice CP 2000 is an IRS Correspondence Audit: Proposed Changes become an IRS Demand

Why did the IRS send Notice CP 2000? They noticed some discrepancy in your tax return. CP 2000 explains the IRS’ position and then proposes changes to your tax return. Sometimes it’s good news, but usually CP 2000 proposes you pay additional tax, interest, and penalties. Even though Notice CP 2000 uses polite language, it’s an IRS correspondence audit. If you do nothing, the proposed changes on CP 2000 show up on future Notices and eventually become an IRS demand.

The IRS often doesn’t have all pertinent information

The IRS assumes Notice CP 2000 is correct. Why? CP 2000 uses the information the IRS has on file. Most of that information is income based, like W-2s, Form 1099-MISC, Form 1099-C, Form 1099-R, Form 1099-K etc. Remember employers and banks send a copy to the IRS. Typically the Client didn’t get their copy, so it’s not on the tax return. Now, the IRS proposes you pay tax on the entire amount. But let’s say they received Form 1099-C, Cancellation of Debt. We often exclude some or all of that cancelled debt income through Form 982.

“Amending your tax return deals with the IRS proposed changes by presenting the associated deductions and tax credits the IRS didn’t factor in. In some CP 2000 cases the proposed change not only disappears, but generates a refund. Strange but true.”
– Gary Bode, CPA accountant

IRS Notice CP 2000 tips:

  • Never assume the Notice is correct. Check it out carefully. Hey, the IRS makes mistakes too!
  • Deal with IRS Notice CP 2000 somehow. The IRS won’t go away.
  • Don’t panic. Sometimes you can decrease the IRS proposed changes on CP 2000 by submitting additional information.
  • Take time to understand the tax issue involved. Pull out your copy of the return.
  • Don’t be nasty to IRS employees.
  • Determine if you have other tax issues in the same return. We generally pull your IRS transcript.
  • Don’t open up other tax issues or expand the audit to extra years. One Client argued she had prepared all her other Form 1040s the same way so she knew IRS CP 2000 was wrong.
  • Ask to have penalties abated. If you have a sob story, tell it to the IRS.
  • If you do owe, consider using an Offer in Compromise to cut the amount the IRS will accept as full payment.
  • If you owe, the IRS offers Installment Agreements.
  • If you owe, consider obtaining currently un-collectible status with the IRS.
  • Remember the IRS informs your State when they change a tax return. Be prepared.
  • Don’t stand on principle. Sometimes it’s more cost-effective and less stressful to just pay the IRS, even if they’re wrong.

Our virtual office means we can help you with IRS Notice CP 2000 no matter where you live.

We offer a free phone consult on IRS Notice CP 2000. Usually, that solves the problem and folks handle the IRS themselves. But when we take on case, it’s usually cost-effective.  (910) 399-2705.

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