1099 Tax Software Blog

A CP 2000 notice is issued when the IRS suspects that a federal income tax return has either under reported income, taken excessive credits or deductions, or both.

A CP 2000 notice from the IRS is frustrating and worrisome for all involved parties.  Here is what happens.  The recipient of a CP 2000 notice gets a letter in the mail that says that they “understand” that they owe this additional money to the IRS because of a transaction between the payer and themselves.  The recipient is in a panic and contacts the payer and is upset because they don’t understand why they owe more money to the IRS.  The payer is even more upset at this point and calls me, the 1099 preparer and transmitter.

There is good news, a path out of this mess, and words of advice.

I start with the words of advice. If you are the recipient, contact the payer right away.  If you are the payer, contact the person who prepared and transmitted your 1099 forms right away.  Don’t delay.  Don’t hope that it was one letter that one recipient received from the IRS and that this problem will go away on it’s own in due time.  Get the recipient to scan or fax over a copy of the CP notice and start investigating right away.  Contact the 1099 preparer.  Waiting and hoping is the worst path to take.

The good news is that the Underreporting office at the IRS that mails out these CP 2000 notices doesn’t mail out all of them on one day.   Let’s say the payer efiled 2,500 1099-MISC forms for a tax year and all of the money amounts on those forms were systemically off.  The IRS mails out just a handful of CP 2000 notices at a time to see if there is any response.  If there is no response, they continue mailing other recipients.  If you act quickly, you can suppress future CP notices from going out and efile a correction.

Now the path out of this mess. Here are the steps you need to take to resolve this issue.

1. Call the IRS Underreporting Office.  They can be reached at 866-455-7438 extension 3.  Tell them what happened and ask them to suppress future mailings from going out.  I know this sounds cliche, but the people in that office are there to help and yes, they are from the Government.
2. Electronically file a correction.  Get the correct data, review it, and transmit.  Do this quickly as you can.
3. The payer needs to put together a letter of explanation to recipients who have received a CP 2000 notice. The letter of explanation needs to be on company letterhead and include:

• Payer name, contact name and TIN.
• Payee or recipient name.
• Type of form (in our above example, the form type is 1099-MISC).
• Correct money amount.
• Brief explanation of problem.

The people who received the CP notices need to respond to them.  The payer, in the letter that they are sending to the recipient, instructs the recipient to respond to the CP notice and to include the letter of explanation.  The recipient checks off that they “don’t agree with some or all of the changes”, signs and dates that form, and includes the letter of explanation in their reply to the IRS.  This needs to be done before the due date on that CP notice.

Any recipient who has received a CP notice needs to get this letter of explanation.

If any of this doesn’t make sense, drop us an e-mail or give us a call.  Support can be reached at support@1099fire.com and/or (608) 444-6575. 

CP stands for “Computer Paragraph”, which is essentially a selectable form letter that the tax examiner can send to the taxpayer.

by

Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.