Now that most tax refunds are deposited directly into taxpayers’ bank accounts, the dream of opening your mailbox and finding an IRS refund check is all but a thing of the past. However, since the IRS now does most of its auditing through correspondence, an IRS letter can likely increase your heart rate and, in some cases, even ruin your day.
CP-Series Notice – The first step the IRS uses in their return processing involves automatic matching what you reported on your tax return to the data reported by third parties (e.g., employers, banks, and brokers). When this information does not agree, the automated collection effort begins. This is why it is essential for us to receive copies of all income documents such as W-2s, K-1s or the 1099 series provided to you.
Once the IRS detects a potential issue with your tax return, it will contact you via U.S. mail. Please note that the IRS’s first contact about a tax delinquency or discrepancy will never be a phone call or email. Such calls and emails are a common tool of scammers. If you get one, hang up the phone or delete the email. When in doubt, contact our office.
The automated CP notices describe the proposed changes to your return including any additional tax due, as well as any interest or penalties. The notice will also explain the examination process and advise on how to respond.
Don’t Panic – These notices often include errors. However, you do need to respond before the deadline specified on the notice (usually 30 days) for your response to be considered timely and to avoid the collection efforts from being escalated to the next level if applicable. Since due to unforeseen postal delays this date might be closer than you think, we suggest you contact us with a copy of the notice as soon as practically possible.
The IRS currently has over 150 varieties of CP notices. The IRS provides an online search tool that provides information on all. The following examples are a few that you might encounter:
CP01C – The CP01C notice advises taxpayers that the IRS marked their account with an identity theft indicator and provides additional information and resources for identity protection.
CP12 – This notice tells you the IRS corrected one or more mistakes on your tax return, and a payment becomes an overpayment, or an original overpayment amount has changed.< /p>
CP112 – This notice tells you the IRS made changes to your return because they believe there’s a miscalculation. As a result, you are due a refund.
CP2000 – A CP2000 notice is very different from the other CP notices (which deal with issues such as identify theft, audits, and the earned income credit). The CP2000 notice includes a proposed—almost always unfavorable—change to your tax return, and it gives you the opportunity to dispute the proposed change. Procrastinating or ignoring this notice will only cause the IRS to ratchet up its collection efforts, which in turn will make it more difficult for you to dispute the proposed adjustment.
Sometimes, the IRS will be correct. You may have overlooked a capital gain or income from a second job or made a payment in an amount different from what you claimed on the tax return. Quite frequently, however, the IRS is incorrect, simply because its software isn’t sophisticated enough to pick up all the information that you report on the schedules attached to your return.
We will be happy to review the information for you and if your notice of proposed change also includes penalties and interest, we might be able to abate some or all. Please contact us in Leesburg at 703-771-1818 or in Warrenton at 540-347-5681 to get the process started.