Senior IRS Stakeholder Liaison Officer Identifies Errors Found on Self-Prepared Returns Usually Not Found on Professionally Prepared Returns
The IRS Audit Under Reporting (AUR) Program Overview
The IRS’s Audit Under Reporting (AUR) program matches third-party information returns (e.g., W-2s, 1099s) against income reported on a taxpayer’s return. If there is a mismatch, i.e., income reported by a third party that the IRS does not find on the taxpayer’s return and is concerned that there is under-reported income, the CP-2000 notice is sent.
Typical Self-Prepared Errors That Generate CP-2000 Notices
Many taxpayers mistakenly believe that if all of their income is reported, their return will not be selected for an audit review. That is a false understanding. While reporting all income will eventually result in a no-change audit finding, why put your tax return in the cross hairs of the IRS?
A common self-prepared error is the income was reported, but on the wrong line of the return. The IRS computers are looking for the third-party income on the proper line item of the tax return. If not found there, the computer reports the discrepancy.
Another common self-prepared error was identified as reporting all income as a lump-sum amount, rather than by individual payer. IRS computers match income by individual payer against the individual items listed on the taxpayer’s return.
AUR System Identifies Potential Under-reported Income – What Happens Next?
If the computer does not have a match, the return is sent to an agent to review the return to verify whether the income was omitted. If the agent reviewing the return discovers that the income was reported on another line on the return, the IRS does not issue the CP-2000 notice.
Professional tax preparers, when reporting income on a gross amount on the face of the return, know to include a backup schedule with the return that lists the individual payers by name and the amounts of income they each reported to the IRS. If the IRS agent reviewing the return sees the income reported on a supplemental schedule, the issue hopefully will be closed.
They senior stakeholder remarked that when an agent is reviewing a return, the human element is introduced. Some agents, if there is any discrepancy between the third-party information returns and the income reported on the return, will propose an audit adjustment. Other agents, depending upon their personal guidelines as to the degree of accuracy, may overlook what they consider minor or insignificant adjustments.
Tax Tip #1
If you self-prepared your return and receive a CP-2000 notice, be sure to respond by the due date shown on the notice (to protect your administrative appeal rights), send copies (not originals) to the IRS of your additional documentation to support the amounts reported on your return to the address shown on the CP-2000 return, and if you agree with the IRS’s findings and are submitting payment, be sure to send the payment to the payment address shown on the CP-2000 notice.
Tax Tip #2
Consider engaging an experienced tax professional to prepare your return. If for no other reason, the anxiety of receiving unnecessary IRS notices will no longer be an issue.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.
