I often have individuals come into my office who receive the CP-2000 notice stating that they are unsure of what to do next, says Tax Attorney Victorianne Maxwell of Maxwell Law Firm, PLLC. WHAT IS INCOME FOR TAX PURPOSES Funds received for services, employment, earned interest, annuity payments, sale/exchange of capital gains, any other funds received where there is not an exception to income.
WHAT IS CONSIDERED AN UNDERREPORTING OF INCOME
Underreporting of income results when a taxpayer fails to report income on their tax return.
HOW WILL IRS KNOW IF I UNDERREPORTED INCOME
Employers are required by law to report wages they have paid out and taxes withheld on a W2 form to IRS. Companies who use contract labor are required to report how much have been paid to these service professionals on what is called a 1099 Form. The same is true of cashed in retirement accounts, transferred accounts, and the sale/exchange of capital gains. Intuitions that pay out interest are similarly required to report the interest earned that year on a 1099-INT form. IRS regularly runs reports and checks to see if the amount of income reported on a tax return matches what was reported by other third parties. If you received a large refund or are self-employed you are more likely to be targeted for such an underreporting notice.
WHAT ARE THE CONSEQUENCES OF UNDERREPORTING INCOME
You will receive a CP-2000 Notice stating that there has been an underreporting of income and what your estimated liability should be vs. what you were refunded or paid. You have a limited amount of time to respond and or dispute the CP-2000. If you do nothing than the IRS will deem that this amount is due.
WHAT SHOULD I DO IF I RECEIVE A NOTICE
You should contact a tax professional immediately. If you do not agree with the notice either because you feel that income mentioned in the notice was reported or was not earned by you, then your Tax Attorney can contact IRS and initiate a dispute. This will provide you with the time necessary to come up with the time necessary to gather the correct documents to dispute the notice. If you do agree there was an underreporting of income, then your Tax Professional can probably go through the return and amend it to see if there are any additional tax credits available to apply to return to reduce your liability. In addition, that tax professional can assist you with installment plan to help you get back on track. Maxwell Law Firm, PLLC represents clients all over the United States on Tax related issues: Garnishments, Tax Liens, Tax Collection Defense, Offers in Compromise, Installment Agreements, and Income Tax Services you may call them at 704-461-1883 or save 25% off our already low fees by your appointment scheduling online.