I got a CP2000 Notice from the IRS for my rental property taxes

Why did I get an IRS CP2000 Notice?

First, if you received an IRS CP2000 Notice don't panic, yet.

The CP2000 Notice is automatically generated by an IRS computer system when there's a mismatch between the information that the IRS have about you ((like Forms W-2, 1099-B, 1099-K, Deductions, or Tax Credits) and the information that was reported on your tax return. Keep in mind, these CP2000 notices could relate to a number of things in your tax return, not just rental property information you submitted with you tax return to the IRS.

We recommend speaking with a tax professional about your situation. If you are already working with someone, you can use Digb and share the tax report with them. If you would like to be connected to a new accountant, you can reach out to us (support@digb.com) to get connected to a CPA that specializes in supporting people with rental properties or complete this form and will connect you with a rental property CPA.

Not everyone enjoys reading lengthy articles about the IRS and taxes. For you, we created a short video below summarizing the key points. Enjoy!

How to evaluate the CP2000 Notice

There's a process that you or your tax professional need to follow when you receive a IRS CP2000 Notice from the IRS.

First, you'll want to review the following key pieces of information from the notice: 

• 🔍Legitimacy: Make sure the IRS Notice is real (e.g. check formatting, logo, address, etc.). There's a lot scams where people impersonate the IRS. if you think the notice is fake, call the IRS at 1-800-829-1040 to verify the authenticity of an IRS notice or letter before sending personal information or mailing a check! ‍

1. 📅 Tax year: Check the tax year that this notice applies to (typically, calendar years in the top right corner)‍
2. ⏰ Notice date: Respond within 30 days from the notice date to the IRS. If you don't respond within 30 days the IRS will send you a Notice of Deficiency followed by a final bill.‍
3. 💰Proposed $ due: Finally, keep in mind this is a proposed amount. As stated in letter -> "Reminder: This is not a bill. We haven't charged the proposed amount due."

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Once you've decided the CP2000 Notice is not a scam you'll need to respond within 30 days of the notice date. If you don't respond to the notice within 30 days, the IRS will send you a Notice of Deficiency followed by a final bill.

The conditions, timeline, and consequences are listed on page 2 (above) of the IRS CP2000 Notice.

Digb can help you calculate the correct income, expenses, and capital gains if you have a rental property or host a vacation rental.

How to respond to your IRS CP2000 Notice

Here's how to respond to your IRS CP2000 letter now that you are certain it is legit. Keep in mind, if you don't feel comfortable reviewing and responding to the IRS CP2000 letter, Digb can help. We recommend speaking with a tax professional about your situation. If you are already working with someone, you can use Digb and share the tax report with them. If you would like to be connected to a new accountant, you can reach out to us (support@digb.com) to get connected to a CPA that specializes in supporting people with rental properties. Alternatively complete this form and will connect you with a rental property CPA.

Do you agree or disagree with the notice?

On Page 3 of the IRS CP2000 notice (below) the IRS breaks down the difference between what you reported on your tax return and what they think you should have reported. There are two columns on Page 3 of the IRS CP2000 notice -> "Shown on return" and "As corrected by IRS".

• Shown on return (column): This is the $ value, for a specific category (e.g. interest income), that you reported on your tax return when you filed.
• As corrected by IRS (column): This is the $ value of the category that the IRS thinks you should have reported on your tax return.
• Explanation of changes: Breaks down the summary $ for categories so you can see where the difference is coming from. For example, the IRS may think that a taxpayer has interest income from Bank of America that wasn't report on your their tax return. Bank of America sends a copy of the 1099-INT to the IRS and one to the taxpayer. If the interest income reported on the 1099-INT wasn't included on the tax return by the taxpayer this could be the reason for this difference and result in the taxpayer receiving a IRS CP2000 Letter.

• Go through your tax documents (e.g. W-2, 1099-K, etc.) and compare them to $ values that are listed in the "As corrected by IRS" section, on page 3, of the IRS CP2000 notice. Do they match? Did you accurately report income, deductions, tax credits, marital status? 

• Page 4 of the IRS CP2000 Notice explains how the IRS calculated “As corrected by IRS” column on page 3. In this particular case, page 4 information is not really relevant to the taxpayer but it is good practice to read through and/or ask your tax advisor whether they are applicable to you.
• Pages 5 & 6 of the IRS CP200 Notice inform you about next steps including how the interest has been calculated on the proposed amount due, and 1099-K reporting.

Responding to the IRS CP2000 Notice

The response form is listed on Page 7 of the IRS CP2000 Notice.

• ‍Agree with proposed amount listed on Page 1 of Notice: On Page 7 of notice, check “I agree with all changes” box on section 1, sign & date and send to the IRS with the payment voucher (page 9) . Note that by signing you are agreeing to these following conditions and paying the full amount due.

Note: before agreeing, you should consider providing your rental income and expenses to Digb to check whether the proposed amount is correct. The IRS may not have complete information about your rental property, especially because most property management firms and vacation rental platforms (e.g. Vrbo, Flipkey, AirBnB, Hometogo) do not report anything to the IRS. Additionally, even those firms and platforms that do report transactions to the IRS on a 1099-K form are providing gross transactions.

• Disagree: If you disagree with the amount proposed, you have to provide proof showing why you disagree. This is where Digb can help you.
• Finally, here's a Sample CP2000 Response Letter to help you draft a response

Conclusion

IRS CP2000 Notices are common and usually a result of a mismatch between what you reported on your tax return and the information that the IRS has. It is important to review the CP2000 letter carefully, evaluate how you want to handle it, and respond quickly to avoid additional penalties, interest, and the proposed amount on the notice becoming permanent (e.g. a bill).

We recommend speaking with a tax professional about your situation. If you are already working with someone, you can use Digb and share the tax report with them. If you would like to be connected to a new accountant, you can reach out to us (support@digb.com) to get connected to a CPA that specializes in supporting people with rental properties. Alternatively complete this form and will connect you with a rental property CPA.

‍This article is provided for illustrative purposes only; it does not provide personalized tax, legal, financial, or other professional advice. Your situation may be different; consult a professional for information concerning your individual tax, financial, or legal situation before taking any action.

Last Updated: August 25, 2022