Currently the IRS uses the CP2000 Notice to notify taxpayers of specific adjustments it is recommending to their income, expenses and credits on a tax return under examination. In an effort to close the $300 billion "tax gap" – the difference between taxes owed and taxes collected, the IRS has developed a new "soft" notice. The new notice labeled CP2057 is similar to the CP2000 Notice minus the specifics. It will merely request the taxpayer to "double check" parts of their tax return and file an amended return if they discover any mistakes when they "double check." IRS spokesman Bruce Friedland said, "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."
The benefit of this new notice for the "service" in collection efforts is obvious, not so much is the "benefit" to the taxpayer. If the IRS has specific information it believes will adjust your return, they are going to send the standard CP2000 Notice identifying those proposed adjustments. If they lack specific information and send the new CP2057 Notice, they are essentially initiating a "fishing expedition" hoping the taxpayer will voluntarily set aside their civil liberties and provide them the information they lack. With the tax gap set in the hundreds of billions and pressures abounding from congress to collect more tax more efficiently, the potential abuse of this type of "notice" are evident. The IRS could conceivably send this notice to every taxpayer that claimed a credit or itemized deductions on their returns.
A taxpayer who obliges the IRS with an amended return in response to a CP2057 could unwittingly find themselves in the predicament of facing an IRS audit – nothing would prevent the IRS from using the "new" information to take such an action. There is the additional possibility that the "fear factor" the IRS relies so heavily on to gain voluntary compliance from taxpayers could result in innocent, law abiding citizens filing an amended return unnecessarily after receiving this notice. The result would be more headaches for both the service and the taxpayer which is not in the best interest of either party and a creation of an IRS Problem with there previously was none. This new notice has all the appearances of creating more ambiguity in the collection of taxes. More ambiguity will yield less efficiency in IRS operations and the continuation of a perception of an unfair tax system amongst taxpayers.
Advice from qualified tax professionals on how to deal with this notice when a taxpayer receives it will depend on the followup procedures and notices the IRS sends to taxpayers that don't respond to the initial notice. Currently a sample CP2057 can't be located on the IRS website, if you happen to have received one or receive one in the near future we'd love to have a copy faxed to our offices at (813) 251-9605. In the meantime the IRS would be better served to close the informational reporting gap so it can target potential abuse more specifically rather than throwing out a wide net. Hey here's an idea, require banks to submit a yearly informational return on business accounts. It needs to be only three lines; total deposits, total withdrawals, and over/under. This would be a great place to start in comparing business income, expenses and profit claimed on a return. Then again it's not really our job to tell the IRS how to better do theirs.