An IRS letter landing in your mail box is almost never a good thing. Unless it’s a refund check. Most letters you’ll see from IRS are generated via an extensive (and frequently inaccurate) computer matching system. These letters represent approximately 75% of all audits IRS conducts.
These letters, known as “correspondence audits”, take place entirely through the mail. You should be aware that IRS almost never calls taxpayers, and will never send an email to you. If you receive a communication claiming to be from IRS other than a letter in the US mail, it is not from the IRS. DO NOT ENGAGE WITH THESE COMMUNICATIONS - EVER.
The CP-Series Notice – When a potential issue is flagged by the IRS matching algorithm you will receive a computer generated notice in the mail. This system handles billions of K-1, W-2, 1099, and other so called ‘information returns’ against hundreds of millions of social security numbers. The notifications this system produces - and remember virtually all CP notices are computer generated - are frequently inaccurate and at best based on incomplete information.
CP-series notices come in hundreds of different types.
Many CP notices simply seek information and explanations. If you end up owing tax, you’ll get another letter describing how that tax was calculated. However, a CP2000 notice is very different. If you receive a CP2000 it will almost always include a proposed change to your tax return and an amount you owe. DON’T PANIC. These amounts are are never reviewed by human eyes before going into the mail. If you get a CP2000 from the IRS that makes no sense to you at all - it will usually be an IRS error.
That does not mean you can neglect making a response. Best practice is to respond to a CP2000 (or any other) notice within a week. There is commonly a 30 day deadline. This is one deadline you absolutely want to make.
Many CP notices will describe the proposed tax due, as well as any interest or penalties. The notice will also explain the examination process and describe how you can respond.
I’m going to repeat this: Don’t Panic – These notices often include errors or may be unrelated to any amount due. If you have a clear understanding of the correspondence, you should craft an immediate response.
In cases of a CP2000 notice, it is advisable to at least have a tax professional review the letter for you. You will also generally want them to prepare a response to IRS. The wrong response to a CP2000 assessment providing superfluous or unsought information can cause a delay in getting the matter resolved. In most cases, paying a CPA is worth the price.
What if the IRS is right? Then you’re going to have to settle up. Whether you knew about the problem or what caused it… if it’s wrong, it’s wrong.
It’s an excellent idea to know for certain before responding to a CP notice whether you have a problem - or the IRS computer matching system has a problem
If you receive an IRS notice, get in touch and we’ll determine the best response. Having someone talk to the IRS on your behalf is almost always a good idea if the amounts involved are substantial.