At least two clients reaching out to us every week because they received a CP2000 notice from the IRS. If you receive a CP2000, it means that you omitted reporting some income or tax documents in your original tax return. There are two types of income that are easily omitted. One is capital gain from sale of stocks, for example, RSUs or ESPPs, which we have discussed in another article. The other is 1099-MISC income from contracting or freelancing work.
It is likely that you never receive a Form 1099-MISC so you are not aware of the income. However, the IRS has the record from the payer that you earn this money. Therefore, you are required to report it on your tax return and pay taxes. The notice CP2000 generally will recalculate your tax liability after including the omitted income. It is very common to see a large amount due on the notice which includes taxes, penalties and interest. In most cases, the tax liability proposed on the CP2000 is not accurate and it may be overestimated. The amount is not the actual amount you owe.
The resolution to the notice CP2000 is to amend your tax return, include the income and related expenses and send the IRS a response package to appeal the proposed balance due. We handled this kind of notice on daily basis so we are very fluent with this type of engagement. Our success rate to resolve the notice is over 95% at the first attempt.
Contact Dimov Associates if you need assistance. We are more than happy to assist.