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IRS CP2000 Notice CPA tax accountant offers tips on responding to the IRS | penalty abatement and amended tax return

CP 2000 Notice CPA

I’ve  addressed the most common issues I see with new IRS CP2000 Notice clients. Our virtual office means we can help you, if needed, wherever you live. (910) 399-2705.

IRS CP2000 Notice arrives when you’ve made an error on your tax Form 1040. The typical scenario? You omitted an income related tax form like W-2, Form 1099-C, Cancellation of Debt, Form 1099-B etc. Remember the IRS receives information for all revenue reported to your Social Security number. CP2000 proposes changes to your tax return, sometimes years after you’ve filed. The term proposes is a nice touch, when IRS Notice CP2000 offers a refund. But if you owe additional tax, the term proposes becomes a demand. But the IRS is polite about it and generally doesn’t propose a penalty if you react within their timeframe. I’ll share some tips I’ve learned as an IRS Notice CP2000 CPA tax accountant for the following issues:

  • What is an IRS Notice 2000?
  • Your errors.
  • IRS errors.
  • IRS penalty abatement.
  • Limiting the scope of the CP2000 Notice.
  • Does IRS Notice CP 2000 means you’re under the gun with the IRS?
  • Criminal charges.
  • Do you need a CP 2000 Notice CPA?
  • Accepting CP2000.
  • Contesting CP2000. Pulling your IRS wage and income transcript.
  • Amending the tax return with Form 1040-X, Amended U.S. Individual Income Tax Return, to include legitimate expenses and tax credits related to the income.
  • Do I need to amend my tax return for responding to the IRS CP2000.

What is an IRS CP2000 Notice?

It’s a computer generated letter from the IRS notifying you of some alleged error on your tax return. Some CPA tax accountants see it as the start of a low-level IRS tax audit. It generally has a limited scope unless you volunteer un-required information. It can arrive years after filing the original tax return. Occasionally a single tax return generates more than one CP2000. It starts a timeline with the IRS for the tax consequence involved. The tone is matter of fact. CP2000 doesn’t threaten. But if ignored the IRS will eventually eat your lunch.

Your Errors

Sometimes IRS Notice CP 2000 just corrects an error on your return. I never see a CP2000 Notice refund, but it does happen. But I’ve generated a refund by amending the tax return cited by CP2000.

The biggest error you can make dealing with the CP2000 Notice? Not responding. There’s a generous timeline implicit with CP2000. And generally there’s no initial penalty. Don’t squander it. The IRS computers never sleep. I’ve had Clients call months after receiving CP2000 when the IRS threatens a tax lien.

“The IRS assumes their CP2000 Notice is correct. You have to prove the IRS is mistaken.”
– Gary Bode, IRS CP2000 Notice CPA tax accountant

IRS errors

IRS Notice CP 2000 usually asks for additional tax and interest. The impetus for this post is a news item where the IRS miscalculated the interest on CP2000 for several weeks. This brings up a larger issue. The IRS is not always right. If they aren’t, and the amount of the demand is significant, contest CP2000. If the amount is small, maybe it’s better to just pay it. But paying it implies you were in error.

Sometimes, even if the IRS is wrong, I’ll advise a CP2000 client to pay anyway. Why? I may not be cost-effective. Or, the strain on a Client for a $70 additional tax just isn’t worth it. I’ve had a few Folks fire me for that advice because the principal runs contrary to their own ethics and they get offended by a practical approach.

IRS Penalty Abatement

If needed, I ask for penalty abatement on a CP2000 case. I cite past tax compliance, current tax compliance and explicitly state the underlying error was unintentional. For example, if you moved and didn’t receive a Form 1099-C, Cancellation of Debt, by mail because of an old address, I explain that to them. If and when the IRS issues a penalty you can ask and receive an abatement. But you have to ask. The magic words? I now understand my tax reporting obligation and will stay in IRS compliance in the future.

People laugh at me when I say that the IRS is lenient. They haven’t been in the past. But an overhaul mad them easier to work with. Generally the State is more aggressive than the IRS.

Limiting the scope of the IRS CP2000 Notice

Try not to expand IRS interest in the tax return in question and/or the issue in other tax years. This is the single biggest mistake I see on new CP2000 clients. Folks will confess to other issues without considering the tax consequences. Consider consulting a CP2000 Notice CPA tax accountant if other tax issues exist in the return cited by CP2000 and/or the same issues exist in other tax returns.

Often this un-required information comes out during a rant with the IRS in person or in a letter. I’ve found most IRS Agents to be completely professional. You can poke the bear but remember the bear has lots of “friends” who can make your life miserable.

Does IRS Notice CP 2000 means you’re under the gun with the IRS?

Maybe. The IRS generates CP2000 automatically by computer. Sometimes they pretend a real Agent works your case. Sneaky. It seems logical they’ll look at other areas of the tax return in question and other tax years. Receiving a CP2000 for a single issue on a tax return doesn’t mean they won’t ask about other issues. I know it seems illogical, but they don’t always address all issues simultaneously. Some parts of the IRS don’t communicate well with each other.

Criminal Charges

The IRS seldom pursues criminal charges. But if they’ve stumbled on a deliberate attempt to evade tax, consult a CP2000 Notice CPA tax accountant. The most common criminal charges in 2106? Unreported off shore banking accounts. The old FBAR, which reports bank balances in foreign countries to the IRS, is now FinCEN 114 which goes directly to the criminal  area of the IRS.

Do you need a CP 2000 Notice CPA tax accountant?

Not always. But here are some criteria where you should consider calling us:

  • The amount demanded on CP Notice 2000 is high.
  • There are other tax issues in the same tax return cited by CP2000.
  • You have similar tax issues in other tax years.
  • You’ve deliberately presented a falsified tax return.
  • You don’t understand the tax issues specified in CP2000.
  • The CP2000 has IRS errors.
  • You have legitimate expenses or tax credits that offset the revenue the IRS presents on CP2000.
  • When the stress of handling CP 2000 yourself makes hiring us emotionally prudent. I’ve sure seen Folks suffer for months. Any CP2000 Notice CPA tax accountant runs interference with the IRS for you.

Accepting IRS Notice CP2000

The IRS gets a bad rap, but CP2000 Notice is often correct. If so, and the amount demanded is modest, just pay them. I add a letter explaining you think they’re wrong but you’re paying the demand anyway. That way you’re not admitting guilt. Then ask for penalty abatement, if a penalty is imposed, in a later letter.

Contesting IRS Notice CP2000

Try to imagine an IRS employee going through 150 returns a day. Look for red flags and if they’re legitimate explain and document them. Be succinct in a cover letter and provide documentation arranged logically. Consider notarizing appropriate documentation. For example if I use a different number on a rental property foreclosure cancelled debt case than the 1099-A or 1099-C uses I have the Client sign an affidavit showing their futile efforts to get the lender to issue a corrected Form 1099-C. Be ready for aggravation. CP2000 is automatically generated and sometimes you can’t get your response to a human being. Understand the tax issue and address it directly. Don’t open other tax issues or other tax years – ouch! Wring all emotion out of your CP2000 response. And don’t insult the IRS. Their Agents are professionals but don’t provoke them. I think most CPA tax accountants pull the IRS wage and income IRS transcript. You can pull it too through the Get Transcript IRS online tool. That helps assure you’re addressing all the tax issues for that year.

Amending the tax return cited on CP2000

The IRS essentially re-computes your tax return using information they’ve received. For example, they might have received a Form 1099-MISC from someone you subcontracted with. You left it off the return, perhaps because of an old address. So the IRS assumes you owe income tax and self employment taxes on the amount on Form 1099-MISC. But you had legitimate expenses with providing the subcontracted services. You have the right to present these expenses by amending the tax return in question. But, in say for a cancelled debt related IRS CP2000 notice you just have to present the IRS insolvency worksheet and Form 982, Reduction of Tax Attributes, and not amend.

“Amending the tax return cited by the CP2000 Notice, using Form 1040-X, Amended U.S. Individual Income Tax Return, sometimes results in a refund. Strange but true.”
– Gary Bode, CP 2000 Notice CPA tax accountant

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8 comments to IRS CP2000 Notice CPA tax accountant offers tips on responding to the IRS | penalty abatement and amended tax return

  • Norb

    I went to my tax guy and he had me file a schedule c (after receiving a CP2000 notice). I had the tedious task of looking up all individual items and finding their fair-market-values (to determine profit/loss on each item sold). It was easy to track postage costs as I ship everything via eBay and it is deducted from my paypal account. You can generate “reports” on paypal, so you can track your returns, refunds, eBay and paypal fees etc. The “only” thing(s)I did not have were receipts for were the items I sold (hence the fmv search). After all was put into schedule c, I showed a loss. Compiled with my amended return for 2012 (in which I paid into fed. and state), it showed a refund due. After extensive research before I sought tax help, in treating this like a business since it was created “for profit”, is a refund really due or is it a Net Operating Loss? Tax guy says refund? SO confusing! Do I need a CP2000 CPA specialist? So many people seems to have this question since the new online seller law, I am wondering which type of tax consultant is more familiar with it?

    • Hi Joe. Well Schedule C is what you’d file. You are required to track the costs of your stock if you want to claim them. If you’re audited I don’t think the IRS will allow estimates. With business mileage, for example, they’ve denied all business mileage when Folks estimate despite the fact that there was obviously some business mileage. I’d say refund in this case is correct. Sounds like the matter is settled. Hope that helps.

  • Ali

    I just received a CP2000 on my original 2012 tax return. The thing is I amended that return in October 2012 and dealth with all the issues the IRS is bringing up in the CP2000 notice. Should I just send them a letter telling them so much?

    • Well Ali, it doesn’t sound like they received the amended 2012. I’d call or go online to check if they’ve processed it. If not I’d resubmit the amended 2012 tax return with the IRS Notice CP2000 response. But it’s possible they have it and it didn’t “fix” any of the CP2000 issues. Hope that helped.

  • Vanessa Everest

    Hi there! I’ve just received a CP2000 saying that we didn’t claim a debt charge-off from a loan we defaulted on in 2008 as income. It’s saying we owe on the charge-off from 2013. We never received notice from Citifinancial of that matter in 2013. I am at a complete loss as to how to dispute this. How can they charge us tax on a bad debt being charged off on the bank’s side? What should I do?

  • Dan

    Should the CP2000 penalty abatement request be mailed in the same CP response envelope?

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