If you received a CP2000 notice for July, you may be getting an adjustment letter from the IRS before the end of the month. While much of what the IRS does is computerized, that doesn’t mean the IRS doesn’t have the occasional calculation error. In this case, the IRS incorrectly calculated interest due with tax changes resulting from the CP2000 notices. For those who paid the tax balance due, this could result in a second payment being due for additional interest.
CP2000 notices are issued when the IRS makes adjustments to a tax return during processing, or when the IRS proposes changes due to mismatches between the figures entered on the return and the amounts provided to the IRS by outside sources. Usually, the figures from outside sources are income amounts reported on 1099, W-2, and other income forms.
In many cases, confusion over where 1099 income should be reported in each unique situation can lead to a CP2000 notice being issued erroneously. Computers are used to match 1099-Misc forms to income reported on the tax return, but the income may simply be reported in a correct place that the computer does not anticipate. 1099 forms are also often issued erroneously. We always recommend having a tax professional review a CP2000 notice if you receive one.
The IRS calculation error adds fuel to a fire of general public discontentment and distrust that has been growing this year. Aside from alleged political targeting, the IRS has come under fire for holding expensive conferences and training exercises with little perceived value, and just recently for accidentally leaking approximately 100,000 Social Security numbers. The IRS is also facing increased scrutiny from lawmakers as they prepare to become the enforcement wing for the Affordable Care Act taxes and tax credits.