Every year there are approximately 140 million tax returns filed with the IRS and of those, 4 million will receive an IRS letter stating that there is a discrepancy. Your first instinct might be to panic, but don’t overreact. Grayson Blayzek is here to help us understand what you can do if you receive the dreaded CP2000. You’ll want to listen in not only if you have received a letter, but also to learn what you can do to prevent receiving one in the first place.
Short Youtube video recap here: https://bit.ly/2NBiVkm
There are 2 different approaches when dealing with an IRS letter. You can take a proactive approach or a reactive approach. The reactive approach happens after you receive the letter, but a proactive approach helps you get in front of any tax confusion and reduce the chances that you will receive a letter. Here’s what you can do to take the proactive approach.
The first step to amending your tax return is to realize where your mistake was. Did you transpose a number? Did you receive a tax document after your return? A tax professional can help you look at your return and find the problem. Sometimes a backdoor Roth strategy is the culprit in a tax return error. Funds that were converted to IRA’s might get reported on the tax return when they shouldn’t. The process of filing an amended tax return is similar to filing an original return. But instead of filing a 1040, you’ll file a 1040X.
If you do receive a letter from the IRS it will come via snail mail. They will never email you, text you, or send you any other type of message. The letter you will probably receive is a CP2000. 4 million taxpayers receive a CP2000 each year. Basically this form is stating that something in your tax return doesn’t match the IRS records. It isn’t a bill, but do realize the burden of proof is on you to correct the error. Here’s what to do if you receive the CP2000:
Taxpayers spend the first 3-4 months of the year gathering documents and working through the tax filing process so it can be frustrating to receive an IRS letter stating that there is a discrepancy. But make sure that you don’t ignore it. Read it carefully and don’t overreact. Take time to digest the information to get a clear understanding of what the IRS is proposing. Get tax advice if you need it. No one likes paying taxes but it is a function of our society. Annual tax planning can reduce your tax burden but we still have to pay the appropriate level of tax fro our level of income. Maintaining appropriate tax records is a great way to avoid a tax notice from the IRS.