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  • Writer's picture Treavor Dodsworth CFP®, CPA, CKA®

#167 - The Dreaded CP2000


The Dreaded CP2000

It is not uncommon for me to hear people express concern about getting audited. People understandably just don’t like the idea of an IRS agent digging through all of their financial records to audit if their taxes were done correctly. That said, most IRS audits are actually done through the mail instead of what you are envisioning - a man with a suit and black sunglasses pouring over your financial records. Many of the tax forms you receive are also received by the IRS. For example, the IRS gets copies of your W2, 1099s, etc. A computer looks at your tax return and looks at the forms they received. If something looks off, you may get sent a letter. For example, the CP2000. The CP2000 looks somewhat menacing. It may show a proposed amount due prominently and goes on to explain the “discrepancy." That said, while it needs to be addressed, it is not a bill, and even though it lists a proposed amount due it doesn’t guarantee you will owe any money. It is possible you simply need to explain what is happening. Regardless of whether you will end up owing or not, if you get a letter from the IRS:

  1. Don’t panic. It is possible nothing is wrong but it was just flagged by a computer. You may just have to explain what is happening.

  2. Don’t avoid it. If you put off addressing it, it will just cause more anxiety and if something does need to be adjusted it could cause additional interest to be owed.

  3. Remember people that work at the IRS are actually people like you and me. They file taxes. They may even have gotten their own CP2000 letter this year.

  4. Call your tax preparer or me. We can interpret the letter to tell you if you actually owe anything or just need to provide an explanation to clear it up.

I realize seeing a letter in your mailbox from the IRS may cause your heart to skip a beat but it truly is not that uncommon. Just call your tax preparer or me and we can tell you if you actually will owe anything or just need to provide an explanation to clear it up.

 
  • I frequently learn some tidbit I wasn’t aware of when I look through The Slott Report on IRAHelp. For example, apparently while you generally can roll a Roth 401k to a Roth IRA you can’t roll a Roth IRA to a Roth 401k.

  • Please take a look at the chart: “Report 1a: Percentage of U.S. Equity Funds Underperforming Their Benchmarks” Consistent outperformance is very very very difficult.

  • The IDR Waiver Q&A was released so we now know more about how the IDR waiver will be applied.

 

Thank you for reading!


Images from Pexels: photographer Nataliya Vaitkevich

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