Can a CP2000 from the IRS be corrected easily?

Answer 1

It depends on the issues that are involved.

The IRS compares information returns filed on forms W–2, 1098, 1099, etc., with income and deductions reported on prior year income tax returns. If you forgot to report any income, payments, or credits or overstated certain deductions on a prior year return, you may receive the Underreporter Notice CP–2000. The notice number CP–2000 appears on page 1 in the upper right–hand corner.

The notice informs you of the proposed changes to income, payments, credits, or deductions; and the amount due to IRS, or refund due to you. It is normally a five to six page letter. The size of the notice varies according to the number of issues identified in your notice.

The first page of the CP–2000 is called the "Summary Page". It provides a brief summary of the notice and instructions on what you should do to determine if you agree or disagree with the proposed changes.

If you agree to pay. That is the end of the story. (I am sure you don't want to do that.)

The notice summarizes the income, payments, credits and deductions reported to IRS by payers, but not identified or fully reported on your income tax return. It provides you the name of the payer, the payer's identifying number, what kind of document was issued, such as a Form W–2 or Form 1099, and the social security number of the person it was issued to. Be sure that you review this information carefully to verify its accuracy.

Couple years ago, they had wrong W-2 information. I send back the physical W-2 and a letter. That was the end of the story.

If you DO NOT agree with part or any of the notice, DO NOT SIGN THE NOTICE. Instead, check Option 2 or 3, on the response page, explain why you do not agree in a signed statement, attach the statement and any supporting documents you want us to consider to the response page, and send it to us. Include your phone number with area code and the best time of day to call.

Do not file an amended return, Form 1040X, to correct items you do not agree with. These are only proposed changes and the tax liability is not yet assessed. However, if a Form 1040X is appropriate, return it with your response page.

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I always recommend the following steps to be taken for my clients:

A. Mail certify all the correspondent letter to the IRS (You can also UPS etc. as well.)

B. Make a copy of CP2000 and the corresponding documents (if you are sending the original).

C. Write down the name of IRS examiner's name/ID number and the date and time you contacted them.

D. If you DO NOT agree with part or any of the notice, DO NOT SIGN THE NOTICE.

E. Please respond to the letter within 30 days.

F. If you cannot get the documents or need extension, please contact the IRS quickly. The IRS is willing to give you time to look for things.

Answer 2

You were wrong. A sale of a security at a loss does have to be reported to the IRS. If it is reported to the IRS, then you d not have to pay tax on it. However, if you do not report it, then it does not matter that it was at a loss, and you do have to pay tax and penalty, the same as if it was at a gain. The fact that it was at a loss only matters if you report it. You forms you need are Form 1040X and Schedule D. Make sure you use the 2010 Schedule D, not the current version. You can't prove that you don't anything, because you do owe something right now. After you report the sale at a loss, you won't owe anything, but you do owe the tax until you report the sale.

Answer 3

It depends on what it's for, but I've not found them to be big hassles, and the IRS has been pretty easy to deal with.

Often, of course, they're right, something was just omitted from the person's return - in that case, it's just a matter of agreeing, and paying.

The biggest place I've found where their assessment isn't right is for omitted stock sales. The IRS has the report of the proceeds, but has no idea of what was paid for them so assumes in their calculation that the basis is zero. Filling out a corrected schedule D and submitting it takes care of the problem.

I had one about a year ago where in addition to the omitted stock sales, I couldn't figure out how they got their numbers on amount owed. I talked to 2 IRS people who couldn't figure it out either. I just redid the return, including the amounts that had been omitted and their actual basis, and the IRS took my numbers.