Monday, August 25, 2008

IRS Plans New Taxpayer Warning Letters

Warning LetterIRS Plans New Taxpayer Warning Letters

Washington, D.C. (Aug. 22, 2008)
By WebCPA staff

The Internal Revenue Service is planning to increase its enforcement efforts by sending out warning letters to a larger group of taxpayers who may be underreporting their income.

The new warning letter, the CP2057, will differ from the CP2000 letter that the IRS has been sending out for years, according to The Wall Street Journal. The earlier type of letter included suggestions for proposed changes to areas such as income, credits and deductions, while the CP2057 will mainly ask taxpayers to double-check parts of the return and file an amended return if they have made a mistake. Unlike the CP2000, it will not include the exact amount owed.

The IRS will begin testing the new automated notices later this year and expand their use if they succeed in collecting extra revenue.

"The Automated Soft Notice (CP2057) is a test involving approximately 31,000 notices mailed this fall," said IRS spokesman Bruce Friedland in an e-mail. "If the test results indicate limited underreporting in the subsequent year and self-correction of unreported income, we hope to expand the use of this notice. A very small portion of our staff is assisting in this test - again, it is designed as an automated notice. The CP2057 asks the taxpayer to file an amended return, or work with the document issuer to correct erroneous documents."

The warning letters are part of the IRS's ongoing effort to close the estimated $300 billion tax gap by looking for ways to identify people who may be dodging taxes or miscalculating. The automatically generated letters will leverage computer technology for matching information on the returns that taxpayers submit with other forms the IRS receives, such as 1099 and K1 documents, in an effort to find more discrepancies and abuses.

"We believe this approach will allow taxpayers to correct underreporting issues without having to correspond extensively with the IRS, thus benefiting both the taxpayer and the service," said Friedland. "We continue to issue CP2000 notices (an important component of our enforcement efforts) and expect to continue issuing these notices as appropriate, even if we expand the use of CP2057."

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Stephen Martinez E.A.

Tax Office

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