IRS CP2000: Proposed Changes to Your Tax Return

The IRS sends Notice CP2000 when the information reported on your tax return doesn’t match the information the agency received from other entities. For instance, you might receive an IRS CP2000 notice if you reported an income number that was different from the number that appeared on the W2 your employer sent to the IRS. The IRS’s computer system automatically generates CP2000 notices when it finds discrepancies with its matching software. 

The IRS CP2000 is one of the most common IRS notices. The IRS sends over six million of these notices every year. There is no reason to panic when you receive a CP2000 notice, but you shouldn’t ignore this notice. You need to respond promptly. Here’s what you need to know.

What Is the CP2000?

The IRS CP2000 is a notice that the IRS sends when there is a discrepancy between what you reported on your tax return and what other parties reported to the IRS. This notice is not a bill. It shows a “proposed amount due” based on the discrepancy in your tax return. It’s also not an audit notice. 

Instead, this notice outlines the inaccuracy the IRS believes is in your return, and it tells you how the issue affected your tax due. In some cases, the mistake may reduce your tax bill, but in most cases, it increases your tax owed. If the notice leads to a bigger refund or a lower bill, don’t worry about it. Just wait until the IRS sends you a check.

Why Did I Receive a CP2000?

You can receive an IRS CP2000 notice for a wide range of reasons. For instance, maybe your tax preparer forgot to include something in your tax return, or maybe they made a mistake when they reported your information. Perhaps, you forget to give your tax preparer a certain document. Or maybe, you moved and didn’t receive a tax document that had information you were supposed to report on your tax return. 

It’s important to remember, however, that the IRS is not perfect. The agency can make mistakes. For instance, the IRS might have generated the notice because of a real discrepancy, but perhaps, you weren’t required to report the income. 

Here’s an example. Imagine that you settled a credit card for less than you owed. Because you saved more than $600, the credit card company sent you a 1099-C showing the canceled liability. For most people, this is taxable income, but if you’re insolvent you don’t have to report it. The IRS’s computers don’t know that you’re insolvent. They just know that they received a copy of the 1099-C from your credit card company and that you didn’t report the income on your tax return. 

What to Do When You Receive a CP2000 Notice

Again, you shouldn’t ignore the IRS CP2000. But the actions you should take vary based on whether or not you agree with the proposed changes. The IRS CP2000 comes with a response form that explains what you should do if you receive this notice. If you don’t get the response form, you will generally need to write the IRS a letter.

A tax professional can help you figure out how to respond to the CP2000 or any other IRS notice. In the meantime, the following sections outline how you should respond based on your situation.

If You Disagree With the CP2000 Notice

If you disagree with the proposed changes to your income tax return, contact the IRS by the deadline on the notice. Typically, this is one month after the notice was generated. So, by the time you receive the notice, you may have less than a month to respond. 

Again, you can respond using the response form that came with your letter. Or you can draft a signed statement explaining why you disagree with the changes. Also, include a copy of the notice and any schedules from your tax return that relate to the proposed changes. 

If You Disagree With Some of the Changes on the IRS CP2000

In some cases, you may agree with some of the changes and disagree with others. Again, send in that response form or a signed statement explaining what you agree and disagree with. You should also include an amended tax return that details how the changes affect your return.

Write “for reference only” on the top of the amended tax return. At this point, you aren’t really refiling your return. You’re simply illustrating how the changes that you believe are correct affect your return.

If You Agree With the Changes on the CP2000

 If you agree with the changes proposed on the notice, you can just wait until the IRS sends the notice of deficiency. Then, you can pay the bill. However, it’s important to note that when the IRS makes changes to your tax return, it also assesses interest and penalties on the additional taxes due. 

Even if you agree with the changes, you should still reach out and ask for a penalty waiver. The IRS won’t remove the interest. The agency only does that when it removes part of the tax liability — then, it removes the interest associated with that tax liability. However, in this situation, that doesn’t apply. 

To request a penalty waiver, send the IRS a letter explaining why you didn’t report the additional income. Also, include a copy of your CP notice and IRS Form 843 (Claim for Refund and Request for Abatement). Generally, the IRS is willing to abate penalties if you have reasonable cause or if it’s the first time you’ve ever incurred penalties. 

If You Agree But Can’t Afford to Pay

Usually, when you receive an IRS CP2000 notice, you aren’t expecting a bill. You already filed your tax return, paid the balance, and moved on with your life. A CP2000 notice from out of the blue often creates a tax bill that you haven’t budgeted for. 

Luckily, the IRS offers a lot of options for people who can’t afford to pay their tax bills in full. In particular, you may want to do one of the following:

Request a monthly payment plan.

If you want to make payments include a copy of Form 9465 (Installment Agreement Request) when you respond to your IRS CP2000 notice. You can also set up a payment plan online, but you won’t be able to do this until the proposed amount becomes a tax assessment. In other words, you generally won’t be able to set up a payment plan online until after the time period to respond to the letter has passed.

Request currently not collectibile status

If you cannot afford to pay the bill, you can ask the IRS to label your account as currently not collectible. There is no specific form to make this request. You just need to reach out to the IRS and let them know about your situation. This isn’t a permanent resolution. Your tax bill will continue to exist, and it will also continue to accrue interest. The IRS will review your situation every few years, and if your finances improve, the agency will demand payment.

Apply for an offer in compromise

The OIC program lets you settle your tax bill for less than you owe. You can either make a single lump sum payment or make payments over a two-year term. You have to prove that your offer is the most you can afford to pay. This program requires a long application with detailed information about your assets, debts, expenses, and income or payment information.

Look into a partial payment agreement

The partial payment installment agreement is a hybrid between the OIC and the installment agreement. Like an installment agreement, this option lets you make monthly payments on your tax debt, but like the OIC, it also lets you pay off your tax debt for less than you owe. Basically, you make the highest payments that you can afford until the collection statute expiration date. Then, the IRS forgives the remaining amount. 

If the Proposed Changes Are Due to Your Current, Former, or Late Spouse

What if you get a CP2000 notice and the proposed changes are due exclusively to your spouse, former spouse, or late spouse? In that case, you may want to look into innocent spouse relief. Here’s an example. Say that you filed a tax return with your spouse, and you fully believed that your spouse reported all of their income. 

A few months, later, however, the IRS sent you a CP2000 notice, which includes information from a 1099-NEC. Your spouse earned additional income, but they never told you about it. As a result, you are now facing an unexpected tax bill.

Generally, when you file a joint tax return with your spouse, you are both liable for the tax due regardless of who earned the income related to the tax liability. However, in cases where your spouse hid income from you and you had no reason to know about the income, you can apply for innocent spouse relief.

There are several types of innocent spouse relief, and with some options, you can only apply if you are divorced or your spouse has died. In other cases, you may be able to apply even if you’re still married.

Generally, if you receive a response form with this IRS notice, it won’t outline how to request innocent spouse relief. To get help when the changes on the CP2000 notice are your spouse, ex-spouse, or late spouse’s fault, you should reach out to a tax professional. The innocent spouse program can be extremely complicated to navigate on your own, and the IRS takes a lot of details into account to determine whether or not you should be liable. 

If the Changes on the CP2000 Are Due to Identity Theft

What if the changes on the IRS CP2000 notice are due to identity theft? For instance, this might happen if someone stole your Social Security Number and used it to work. Again, look at the response form for instructions on how to respond to this IRS letter. If the response form doesn’t have the advice you need, then, contact a tax professional, and send Form 14039 (Identity Theft Affidavit) to the IRS.

If You Don’t Understand the Changes on the CP2000 Notice

IRS notices can be very confusing. If you receive a CP2000 notice and you don’t understand what it means, you are not alone. These letters and their response form are confusing to a lot of people.

In this case, send a copy of the CP2000 notice to the person who prepared your tax return. They may be able to explain what’s happening. However, you also need to be careful with this — especially if you use a tax preparer who’s not a CPA or an enrolled agent. They may have made the mistake that created the issue in the first place.

If you did your tax return on your own or if you want a more experienced opinion than your tax preparer can provide, you should reach out to a tax professional such as a CPA, an enrolled agent, or even a tax attorney. These professionals have advanced knowledge of the tax law, and they can help you figure out what’s happening.

What If You Ignore IRS CP2000?

If you don’t respond, the IRS will finalize the proposed changes and issue IRS Notice CP3219A. This is a notice of deficiency, and when you receive this notice, the changes have been finalized. The CP2000 notice just proposed changes to your tax return, but this is actually a bill.

The IRS may also issue a notice of deficiency if you respond and the IRS doesn’t agree with your argument. To disagree with this notice, you must appeal to the Tax Court. You have a limited amount of time to appeal, and the process can be complicated. You should contact a tax professional to help you.

How Long Do You Have to Respond to the CP2000?

You have 30 days from the date on the notice to respond. Again, remember that this is the date that the notice was generated, not the date that you received the notice. If you are at a foreign address, the IRS typically gives you 60 days to respond.

The IRS wants to receive the response in this time frame. That means that you shouldn’t rely on a postmark for your response to be on time. Instead, you should mail it several days before it needs to be in. If you’re close to the deadline, you may want to fax in your response.

If you cannot respond by the deadline, contact the IRS. Generally, if you call and talk with someone, they’ll automatically extend your deadline by another month. Don’t call the IRS’s general number unless you’re willing to deal with a complex phone tree. Instead, call the IRS CP 2000 phone number that is printed on your notice. 

How the IRS Generates the CP 2000 Notices

When the IRS receives your tax return, it runs the return through an automated matching system. If this system finds a discrepancy, it flags your return with the 922 IRS code. Then, it generates a CP2000 after applying the 922 code to your account. 

For instance, financial institutions send tax documents to the IRS. Say that one of your financial institutions sent a document about your mortgage interest. Then, when the IRS reviews your federal tax return, it notes that you reported a higher amount of mortgage interest as an itemized deduction.

In this case, you didn’t have any additional income, but there was still a discrepancy. Due to the differences in the tax records, the IRS automatically generates this statutory notice.

How to Pay CP2000 IRS

If you agree with the changes on the CP2000 notice, you can use the notice response form to make a payment. You can also pay the CP2000 online. Again, however, you may not be able to make an online payment until the proposed changes are final.

Get Help With Your CP2000 Notice

Getting a CP2000 notice can be confusing and scary. Luckily, you don’t have to deal with this on your own. We can help you. At the W Tax Group, we have extensive experience helping people with a wide range of tax issues. Give us a call today. We can start with a free consultation, and then, help you find the best path forward for your situation.