Anxious clients often call us at the Silver Tax Group after having received a “CP2000 Notice” (also known as an Underreporter Notice) from the IRS. Most often, they want to understand why they have received the Notice and whether it means they are in trouble. To answer the second question right up front: no, receiving an Underreporter Notice does not mean you are in trouble. However, it might mean you should seek the help of an experienced tax attorney.
Let’s take a look at what you should do if you receive a CP2000 Notice after filing your tax return.
Underreporter Notices Explained
The Internal Revenue Service receives information about your income automatically from various sources, most commonly your employer and financial institutions. If that information does not match-up with the income you report on your tax return, the IRS may conduct a review and then issue an Underrporter Notice to you.
An Underreporter Notice has two purposes. First, it alerts you to a discrepancy between your reported income and information the IRS has received automatically from third parties. Second, it proposes a resolution of the discrepancy, often an adjustment to your reported income that may result in additional tax liability or (in happy cases) a higher refund. Taxpayers generally have 30 days from the date of the Notice to respond.
As the IRS is quick to point out, an Underreporter Notice is not a bill. It is also not an audit. And, as we have said, it does not mean you are “in trouble”. The Notice just means that the IRS has spotted a discrepancy between your reported income and a third party source, and has proposed a resolution. You have the option of agreeing or disagreeing with both the IRS’s determination of a discrepancy, and with its proposed resolution.
What to Do If You Receive a Notice
First, do not panic. The IRS issues Underreporter Notices as a routine matter. This is not an accusation and it does not mean the IRS is about to upend your life.
Next, read the Notice to understand the nature of the discrepancy the IRS thinks it has spotted. Sometimes the source of the discrepancy is obvious, as is the solution, in which case you may simply want to follow the IRS’s standard instructions for responding. For instance, suppose you accidentally swapped two numbers when you entered your employment income on your tax return. You may receive an Underreporter Notice pointing out that your employer reported a different amount to the IRS, and proposing that you adjust your return to your employer’s automatically-reported number (and to pay any additional tax, if need be). Assuming you agree the mistake was yours and your employer’s reported figure is correct, it’s an easy fix. The IRS instructions explain how to respond that you agree to the adjustment.
Of course, that is the easy case. If you do not understand or disagree with the discrepancy or proposed resolution, then before responding to the IRS (but within the thirty (30) day deadline), you may want to:
- Gather documentation or information in your possession that supports your disagreement with the Notice.
- Contact the third party whose information the IRS has relied upon, to understand whether the third party made a mistake in reporting your income.
- Review all of your tax filings for the year in question to identify any other instances of the same alleged discrepancy.
- Contact your tax preparer for help in evaluating the alleged discrepancy.
- Contact an experienced tax attorney to assist you in resolving the discrepancy with the IRS.
Gathering this information and seeking advice from tax counsel before you respond to the IRS – even before you call the IRS’s help line – can make responding to a CP2000 Notice much less stressful and time-consuming, and may well safeguard your legal rights.
How an Experienced Tax Attorney Can Help
You do not need us to tell you that calculating and reporting your taxable income can get complicated (which is why it’s best not to try to prepare them on your own). Despite (or perhaps because of) the thousands of pages of constantly-changing tax laws and regulations that determine your liability from year-to-year, questions can arise about what you need to report and how much you owe that do not have clear answers. Sometimes, Underrerporter Notices call attention to those issues, and it takes a skilled legal advisor with years of experience representing taxpayers in matters involving the IRS to identify and obtain the most favorable resolution of the alleged discrepancy.
A tax attorney can, for instance:
- Assist in the investigation of the discrepancy, bringing detailed knowledge of current tax issues to bear in seeking and obtaining information that could impact how your Underreporter Notice gets resolved.
- Advise you when to dispute a discrepancy and when to agree to a proposed adjustment.
- Craft alternative proposals for resolving the discrepancy that may serve your interests more favorably than the resolution the IRS has proposed.
- Communicate and negotiate directly with the IRS on your behalf, saving you the time, energy, anxiety, and potential risk of handling complicated tax matters on your own.
- If and when necessary, represent you in legal proceedings aimed at resolving a discrepancy with the IRS that could not be resolved through negotiation.
These are just some ways an experienced tax attorney can manage and make the best of responding to an Underrporter Notice, of course. Every matter we handle has its own unique facts. No matter what response is called-for in the case of your Underrporter Notice, however, an experienced tax attorney can protect your rights and serve your interests in any dealings with the IRS.
Contact a Tax Attorney Today
If you have received a CP2000 “Underreporter” Notice, take it seriously, but do not panic. The IRS may think it has spotted a discrepancy between your reported income and information reported by a third-party, but that does not mean the IRS is correct, or that the solution it proposes is fair or proper in your case. If you disagree with or do not understand anything about the Underrerporter Notice you received, then contact the team at the Silver Tax Group online or at 855-907-0243 for a free case evaluation.