Understanding Your IRS Notice CP2501: Tax Return Discrepancy

IRS Notice CP2501

If you happen to be the recipient of an IRS CP2501, know that your CP2501 notice regards your tax return accuracy. In large bold letters, directly in the middle of the notice, ‘your tax return doesn’t match the information we have on file should appear front and center. The IRS generates these notices once they have processed your tax return and, during the processing, finds the information you reported to not match what they have on file.

This information is typically provided to the IRS by the payer and it can pertain to a W2, 1099, student loan interest reduction, retirement income, and withheld tax. First, it is paramount that you recognize what this notice is not; it is not a bill, audit notice, or penalty. The notice CP2501 is the IRS’s way of communicating to you that they found a discrepancy in your tax return and in tandem offering a proposal for you to rectify the issue.

What Do I Do About It?

If you’re currently panicking, the first step is to take a breath. As aforementioned, rest assured that this is in no way an audit, penalty, or bill. Secondly, you should also know that CP2501 notices are often wrong and the information the IRS claims to be missing is a result of a system flaw. Which brings us to the next step:

Read Your IRS Notice CP2501 Carefully

Everything you need to know about the IRS’s position is on the document. They will explain the difference in value (between their proposal and your original tax return) and provide you with the necessary steps to act and resolve the problem. Hopefully you have a copy of your tax return on hand or filed away in so that you can compare the two. If not, you can always order a transcript of your original. This information should determine whether you agree, partially-agree, or disagree with their claims.

No Matter Your Decision, There Is a Timeframe

Despite what you decide after reading your IRS notice CP2501, know that you must respond within 60 days. If you do not respond within that timeframe, then the notice can turn into a bill, penalties can accrue, and you are at higher chance of an audit. It is imperative that we hammer down this point; do not let this notice go unanswered.

CP2501 Response

Now that you have come to a decision regarding the accuracy of the notice and evaluated the given timeframe, it is time to respond. We recommend you mail any and all responses via certified mail. In the worst-case scenario, if the mail is lost, you want to have a tangible record that proves you did indeed submit a response on time.

I Agree with The Notice

If you find that you agree with the notice CP2501 and you did make a mistake on your tax return, then to resolve the issue fully you can sign in the appropriate box, state that you agree, and attach a check or money order to cover the difference. Unfortunately, we do not always have the money to cover an unexpected difference. In which case you can apply for an IRS payment plan. This process can be complicated. If you are looking for help with taxes, then this is an area in which seeking the advice of a tax professional is encouraged.

I Partially-agree or Don’t Agree

In the case that you partially-agree or don’t agree with your CP2501 notice, then a different response must be submitted. Here, even more than the former, is where a tax specialist can do wonders for your situation. They will assess your IRS problems and help you draft a response that the IRS will be more prone to agree with. At the very least, you can call the IRS yourself (in the number provided at the top right of the CP2501 form) to try and rectify the problem. Popular opinion is that, without substantial preparation, these conversations tend not to go the taxpayer’s way.

Gather Your Supporting Documents

Within your response, if you can, you are going to want to provide all the appropriate documents which support your position. This can be a 1099, W2, or anything related to the discrepancy. As with any argument, the more evidence, the better chance you have at convincing the opposing party.

Identity Theft

If the information provided, alongside your own documents, is simply not adding up, then identity theft could be the cause of the inaccurate information. This, like a system malfunction, is another reason that CP2501 notices are generated. If you suspect that identity theft may have influenced the situation, then take a look at the IRS’s guidelines for such an event.

Other Mentions

The gist of the IRS CP2501 notice is this: the IRS noticed inaccuracies in the income reported and they have proposed, in so many words, that you fix the problem. You can either agree or disagree and either decision prompts a form of response. However, there is more to note regarding the CP2501 notice.

Calculations

• While the inaccuracy may be correct, the IRS can indeed miscalculate the value owed
• The IRS can use higher tax rates with no deductions when calculating money owed

Accountability

• The IRS declares that the tax return filed is your responsibility alone
• If your accountant’s actions are what led to the issue, you can ask the IRS to abate the penalty due to reasonable cause—this is filed via Form 843 and is usually agreed to

A Tax Professional

Being that a CP2501 can be the result of a variety of different situations, it is difficult to provide overt advice in handling the problem. There are too many variables that influence this particular IRS notice. Therefore, we encourage you, despite if you agree with the notice or not, to seek a tax professional. This IRS enrolled agent will assist you throughout the process and ensure that you are making the right decision, then following the right form of response thereafter.

At the very least, the one thing you need to avoid is neglecting the notice. Usually, these notices can be resolved quickly and simply. Without responding, on the other hand, the situation can worsen—resulting in more money owed and serious penalties.