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My initial reaction when receiving mail from the IRS is panic! Luckily, after doing some quick Googling, I found that tough the situation wasn't great, it also wasn't the worst case situation of a tax audit. What it does involve is pulling out my old tax forms (luckily TurboTax from that year was still installed). Compare the dollar values on CP2000 with the actual documents. In almost every case, the dollar values listed on the CP2000 was higher, because the cost basis was not taken into account. Important to note is the CP2000 is not a bill yet, but rather a notice. Carefully read through the CP2000 and information on IRS page on CP2000.
Based on the CP2000 document, my options were to either agree with the proposed changes, in which the IRS would send me a final bill, or send them a letter and provide any updates.
Common Reason for CP2000
According to what I've read and understood, there are a few common reasons for receiving a CP2000 form.
- Missing W-2
- Missing Stock Option Trades
- Missing Stock Trades
How I Responded to CP2000?
Again, take this is my personal experience, but consult a tax advisor or tax consultant.
First action was to pull up my old version of TurboTax and the appropriate tax return. I confirmed that I did indeed miss some of the fields, and some forms I just didn't realize were available. Some investments I made I probably got emailed notifications of tax forms, but because I did not receive a printed statement, I had forgotten about the investment.
The dollar values listed on the CP2000 listed the value reported the IRS. The description next to the value includes the cost basis, but for some reason the difference isn't calculated. In fact, some of the investments I missed actually lost money, resulting in a small refund. And so the total value owed on the CP2000 may be higher. So it's worth doing the math before agreeing to their calculation.
With a quick cover letter (CP2000 response template ideas here), I included an amended tax return that I updated with the missing information via TurboTax.
Finally, the IRS sent me a followup email with interest that needed paying with a pay by date, which i immediately paid.