Friday, May 22, 2009

Underreporting Income

I wonder how many people know what happens when they under report their income to the IRS. When this happens it can cause a rather serious situation to arise. When a taxpayer sends a tax return to the IRS the first thing the IRS does is perform a computerized “tax match.” This is an automated system that matches the income reported on a tax return to the report the IRS maintains on each and every taxpayer of what has been reported that the taxpayer has earned.

If the income does not match the system will flag the return for further review. If the taxpayer has overstated their income then the IRS will issue a refund. If the income has been under reported then the taxpayer will receive a notice called a CP 2000. This requires the taxpayer to respond accordingly. There are many things that can cause a taxpayer to under report their income mistakenly, usually a simple oversight.
Then again there are other times that the under reporting is not due to an oversight but just blatant negligence. The IRS takes under reporting serious. If you have received a CP 2000 you have got some explaining to do. You may need the assistance of a tax professional to keep you out of trouble.


Kate Dunkin said...
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Kate Dunkin said...

Great post, this was such a interesting article Jeff. When I was going through my issues with the IRS my consultant helped me out so much with my irs wage levy . Thank you for sharing this very insightful article with us!