How to Answer the IRS Letter CP2000
With the Letter CP2000, the IRS wants to audit 100% of people who have not reported all income. Using its new tech tools, the government can now choose many more people to be audited.
The CP2000 letter is the IRS’s official notice that you are under audit for “under-reported” income. This means the IRS believes there is income reported for you on Form W-2 or Form 1099, but was not included on your tax return.
The IRS will charge you for the tax, plus interest. Also, the IRS will charge a penalty of 20% of this newly proposed tax.
If you have received an IRS Notice CP2000, then you are under IRS audit. If you disagree with the IRS’s proposed new tax amount due, then this article is for you.
Here is What to Do Next
The IRS Notice CP2000 gives you some very specific instructions. You can:
- Respond that you agree, by returning the “Response Form” indicating that you agree. By doing so, you will lose all Appeal and Tax Court rights to fight this proposed tax due.
- If you disagree, even if only partly, return the “Response Form” indicating that you do not agree. You have the opportunity to prove your case to the IRS. You can provide evidence, your explanation of the tax law, and a legal argument to prove your case.
- You can also argue why you should not receive the 20% penalty, but proving that you have a reasonable cause for the under-reported income.
- You should not send an amended return to respond to an IRS Notice CP2000. It is more expedient – and more appropriate, that you respond to the audit as instructed on the form. Remember, this is an audit, not a request for a tax return. If someone tells you to file an amended tax return, STOP. Instead, find a qualified tax attorney to respond correctly.
The “proposed” tax appearing on the CP2000 notice can be contested. Usually, you only have one opportunity to respond to this CP2000 “proposed tax due” letter. Unless you are trained in making legal arguments by presenting clear, convincing evidence, the relevant law, and how the law applies to your facts, then using a tax lawyer is your preferred option to handle this IRS audit.
What Happens if Your Accountant Does Not Win the Audit?
If you choose to allow a less-qualified person to handle the audit, and you lose your audit case, then your costs will increase greatly. The IRS will issue a Statutory Notice of Deficiency, allowing you to file a lawsuit against the IRS, in the U.S. Tax Court. Then, a tax lawyer will have to represent you in the U.S. Tax Court.