May and June sometimes brings an unwanted IRS letter to some unsuspecting taxpayers. It’s the IRS CP-2000 letter notifying taxpayers that the IRS is proposing a change to their income tax return (currently they seem to be concentrating on 2005 tax returns).
Taxpayers may receive this letter when the IRS computers believe that income has not been reported properly on the tax return. The computer program matches all of the income documents it receives to the totals on the tax return. If the numbers on the return are lower than the documents on file, a letter is generated.
In my practice, the letters usually are looking for the following:
Form W-2 Wage Income
Form W-2G Gambling Income
Form 1099-INT Interest Income
Form 1099-DIV Dividend Income
Form 1099-G Unemployment Income or State Tax Refund
Form 1099-B Sales of Stocks, Bonds, etc.
1099-MISC Miscellaneous or Self-Employment Income
If you receive a letter proposing a change in your tax I strongly suggest you call me immediately and fax the letter to me ASAP. Some clients’ first reaction is to pay whatever the IRS is proposing for fear that agents will come storming into their homes if they do not pay. Given the number of erroneous notices I’ve seen over the years, I strongly recommend that you have me check the notice thoroughly against your tax return before you write a check.
Other clients choose to ignore the letter and do nothing. After 30 days if the IRS has not heard from the taxpayer they will close the case, assess the tax and notify the taxpayer to pay the assessed amount. If that letter is ignored the matter is referred to the Collections division and things get ugly. Unfortunately, some clients will wait until their bank accounts are levied or their wages garnished before letting me know they have a tax problem.
There is no charge for me to review an IRS letter related to a return I prepared. If you receive an IRS notice for underreported income please contact me immediately, as there is a short window of opportunity to reply to the letter.
