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IRS Notice CPA comments on Notice CP 2000

IRS notice CPA Wilmington NC discusses IRS CP 2000

Gary Bode, CPA: IRS Notice CP 2000 isn't always bad news. But if your's is, consider calling for a free phone consult at (910) 399-2705.

Ouch, there’s a letter from the IRS in your mailbox. The IRS computer generates Notice CP 2000, usually years after the tax period they’re concerned about. Most CP 2000s propose you pay more tax, penalties and interest, and conveniently calculate it  for you.  Statistics show about 33% of CP 2000s don’t demand additional tax, but when they do, the average amount is $1,379.00. While CP 2000 may look like a bill, technically it’s asking for clarification of some tax issues on that tax return. It proposes changes to that return based on information they’ve received.

“Despite the non-threatening tone of CP 2000, you must respond in some way. The worst tactic is doing nothing.”
– Gary Bode, IRS Notice CPA

Possible Responses to IRS Notice CP 2000

  • Agree with it. Remember 33% of CP 2000s don’t demand additional tax. Sometimes there’s even a refund due!
  • Pay what they’re asking. For example, maybe you forgot to include a W-2 on the return, they know about it and have kindly re-calculated the amount of tax due.
  • You disagree with the proposed changes. The IRS isn’t always right. While you could call them, a letter clearly stating your objections and corrections, including relevant documentation, works best.
  • Most CP 2000 clients I see need to amend their prior return. For example, the IRS knows about a Form 1099-MISC you received for work as a subcontractor. The IRS demands tax on all of it. But you had legitimate expenses to offset the income. Amending the return is the only way to present these expenses.

Asking for more Time

Generally the IRS grants more time, especially if you ask before the due date listed in the CP 2000. If you engage a CPA, generally that’s the first thing we do. In my experience, the IRS is patient if they know a professional is working the case.

Penalties and Interest

If you amend your return, or prove you owe less tax then the CP2000 demands, the penalties and interest decrease. If there’s IRS Agent involved, they have more leeway with penalty abatement. I think most IRS Notice CPAs routinely ask for penalty abatement, and, I’ve found there is usually a reasonable cause to do so. Interest is tougher. You have to prove the IRS mishandled some part of your tax problem.

Can you handle CP 2000 Yourself?

Probably. I think most CP 2000 notices are cut and dried. Make sure the IRS is correct. Call them if you need help understanding it. Take timely action.

When do you need a CPA for a CP 2000 response?

When you disagree with CP 2000, engaging a CPA is prudent. You have to prove your case to the IRS. Sometimes you have to amend the tax return(s) in question.

State Implications

Remember, if your State has an Income Tax, they’ll eventually follow the IRS action. Better to be proactive with this, in my opinion.

I’m an IRS Notice CPA with a virtual office. While my office is in Wilmington, NC, I can help you no matter where you live (except CA or HI). If you don’t have a local CP 2000 CPA, or like what you read, consider calling (910) 399-2705 for a free phone consult.

 

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