Friday, June 4, 2010

CP2000 letters by the dozen

The letters usually begin with ominous words: “there is an error on your tax return.”

I’m speaking of course of the CP2000 forms that have been flooding my mail box since right around April 15; it’s almost like the IRS was told to wait until tax season is over and then to let them rip.

The CP2000 is used by the IRS to notify taxpayers of items which do not appear on the 1040 but which have been reported by third parties--usually on a 1099. The IRS’s choice of words can be quite frustrating. They assume that there is an error on the return. They assume that they are right and that the taxpayer is wrong. Therefore included in the form is a computation of tax deficiency, interest and sometimes penalties.

In my experience the IRS is usually wrong in their assumptions. Frequently one receives such a form because the IRS has not been able to match their information with that properly reported on the tax return. Fortunately all it takes to get the matter resolved is a letter of explanation. Still it is frustrating that my clients are being told that I made an error on their return. An unexpected letter from the taxing authorities can be stressful enough; I do not need them being informed erroneously that their accountant is making mistakes! Furthermore, I wonder how many taxpayers do not understand the nature of a CP2000. They might simply pay the amount requested rather than take the time to find out what the form means.

Am I the only one receiving what seems like an inordinate number of CP2000 forms from the IRS this year? Feel free to leave a comment if you have received a CP2000 form recently, especially if it is for something really bizarre.


  1. Very informative. I have seen letters where the IRS "or the computer" have made off base calculations.

  2. Hey - nice blog, just looking around some blogs, seems a pretty nice platform you are using. I'm currently using Wordpress for a few of my sites but looking to change one of them over to a platform similar to yours as a trial run. Anything in particular you would recommend about it?

  3. Hi,

    I got a CP2000 for not including a 1099 in my return.
    However, they are treating my proceeds from stock sale
    (entire $5000) as gain because the 1099 of course did not
    even include the cost basis. The true net gain is only $300.

    I am wondering how to handle this now.
    I can say "I dont agree with some or all of the changes"
    and send the response back
    Calculate the true tax increase because of $300 increase
    in income and send that to the IRS.

    1. Hi:

      It is our policy to not give specific advise on specific issues. You may want to check with one of the tax blogs like the National Association of Tax Practitoners.