The (Dreaded) Year-End “Tax Season”
You likely hear or read stories about IRS resources being stretched and, like all agencies and private companies, their budget being squeezed. Like any resourceful entity, IRS has turned to automation to combat the changes in their tax collection and audit resources.
One of these that IRS touts as being an extremely successful program is the Automated Under-Reporter program. The AUR Unit sends out an incredible number of notices each year, and collects a substantial amount of tax and penalties from the program with minimal human intervention and effort.
These AUR notices, also known as CP2000 Notices, are sent out year-round, but the big push usually happens late in the year from late November into early December. In 2011, IRS sent out over 4.7 MILLION CP2000 notices and in 2012 there were a similar number of notices sent. It’s reasonable to expect that we’ll see an even higher number starting to hit mailboxes later this month. These numbers are up from 3.6 million notices sent in 2006, and don’t show any sign of slowing down.
These automated notices, as the name implies, have very little IRS human interaction at the front end. The notices are triggered by a number of things, most notably math errors, tax calculation errors, and information matching discrepancies in the IRS computer systems. IRS runs matching programs to confirm that all income reported by third parties on your W-2’s, 1099’s, 1098’s, etc. has been reported on your tax return. check this site! If there is an item that the IRS system shows as not reported, you may receive a CP2000 Notice regarding the discrepancy.
If you receive a CP2000 Notice, there are three important things to keep in mind:
1. This is NOT an audit. Although it would appear that your return is being audited, this is an income or tax discrepancy notification, and is not the same as an audit with an IRS Agent.
2. Although it looks very much like a bill or invoice from IRS, it is not.
Again, it is a discrepancy notification, and IRS will recalculate your tax, and tack on any penalties and interest, based on the information they’ve found. You have the right (and obligation I would say!) to review, confirm, and either agree with or disagree with the changes proposed by IRS.
3. Although this is an AUTOMATED notice, do not fool yourself into complacency and just drop the notice into a drawer or your shredder.
There is a specific deadline to respond to the notice, either agreeing, partially agreeing, or disagreeing, and a process for each of those. If you miss the deadline, you will begin receiving increasingly important and urgent notices, and if you completely ignore all the notices, your case will end up in Collections at IRS – not a pleasant position to be in.
Some industry sources report that as many as one-third of the CP2000 notices sent by IRS each year are incorrect. Income may have been reported but on a different part of the return. Interest received by two unrelated people may be reported on only one Social Security Number. Basis in stocks and other assets sold may not have been taken into account.see http://www.cbsnews.com/news/americans-face-changes-for-2016-tax-season/ for more info.
Getting an envelope in the mail with “Internal Revenue Service” in the upper left corner is usually unsettling for most people. If you receive a CP2000 notice, contact our office right away. Again – just because this is a computer-generated notice doesn’t mean the clock isn’t ticking.
Computers never sleep. We’ll help you decipher, review, and respond to the notice in on time and in the format that IRS expects and that will help move it properly through the IRS system.