The IRS derives information about taxpayers from primary and corroborating sources. The primary source of information is the income reported by the taxpayer himself; corroborating sources on the other hand, are those from third parties mandated to report to the IRS. For example, your employer is obliged by the IRS to send a copy of all W-2s of their employees. Upon receipt of your income tax return, the IRS verifies the information you provide with these third party sources, and any missing information or discrepancies will be brought to your attention. The CP2000 serves as your formal notice.

In reading the letter, keep in mind these relevant parts:

  1. Deadline for response date

Failure to respond by the deadline will result to a final notice and a bill

  1. The reason why you are getting the notice
  2. The summary of the proposed changes to your tax due

For parts 2 & 3, seek the help of a tax professional in verifying whether the reasons and the calculations are correct

  1. The steps you should take
    • Review your {tax year} tax return.
    • Compare your return to the information in the Explanation Section – page 5.
    • Decide if the information in the Explanation Section is correct.
    • Check the answers to Frequently Asked Questions – page 2.
    • Complete and return the Response Form in the enclosed envelope – page 3.
    • Complete and return the Installment Agreement Request (enclosed) if you need to set up a payment plan.
    • Review your rights in The Examination Process Booklet (enclosed).
  2. Response Form

If you agree with the changes IRS is proposing, return this form with your FULL or PARTIAL payment along with the completed Installment Agreement Request for the remaining balance (if applicable).
If you do not agree with the changes IRS is proposing, return this form. When you return this form, include a signed statement that explains what you do not agree with. Also include copies of any documents, such as a corrected W-2, 1099, or missing forms, that support your statement.

  1. Explanation Section

This section tells you specifically what income information IRS has received about you from others (including your employers, banks, mortgage holders, etc.). Use the information provided to compare the data IRS has received from others to the information you listed on your tax return to understand where the discrepancy, or difference, occurred.
If you are unsure of the findings of the IRS or your return is complicated, you may want to seek the help of a tax professional in doing the following:

  • Compare your records with those under Information Reported to IRS.
  • Review if the Reasons for the Changes the IRS states is correct.
  • Check how your new tax and the applicable penalties were calculated.
  • Advise on the steps you should take to avoid future inconveniences.

In brief, please note the following pointers in filing your future tax return:

  1. Include all income you’ve received during the year on your tax return.
  2. Wait to file your return until you receive all income statements to be sure your return is complete. If you do not receive and income statement in time to meet the April 15th deadline, estimate the amount of income using pay stubs, bank statements, etc.
  3. Check the records (for example, W-2s, 1098s, 1099s, etc.) you receive from your employer, mortgage company, bank, or other source of income to be sure the information they’re reporting is correct. (Some states pay taxable unemployment benefits, so report that as income as well.)
  4. If you receive any additional information after you filed your return, you should amend your return with the corrected information as soon as possible to avoid any interest or penalties.
  5. Keep accurate and complete records. Normally keeping your records for three years is sufficient.

Source: IRS CP2000 Sample Letters – irs.gov.ph