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Accounting and Tax Tips Blog

If you’ve gone to your mailbox and received a CP2000 letter from the IRS for your Airbnb property, we’ve compiled everything that you need to know to navigate through the grey.  

Do not ignore this letter. In the upper right hand corner there should be the words “Notice: CP2000”. The letter might say something like “The income and payment information we have on file from sources such as employers or financial institutions doesn’t match the information you reported on your tax returns If our information is correct, you will owe…”. The CP2000 notice isn’t actually a bill, even though it looks like one. If this is the case, you are not dealing with a full-blown IRS audit, but a CP2000 is serious business and if you don’t respond, you could face additional penalties and a real bill.

A CP2000 notice is the IRS’s technique of informing you that the information you reported on your tax return does not match to what has been reported to the IRS; the most common way to receive this type of notice is mismatched documents. For example, say you have 3 accounts at your bank. One account earned $20 in interest, another earned $12 and the other earned $10. You show $42 of interest on your return, which is correct, but the IRS receives documents as $20; 12; and 10; however since it is a computer doing the matching and not a human being, you could get a notice that you did not report your interest properly and the IRS will assess the assumed additional tax. Airbnb is required to issue you a 1099 form, which is also reported to the IRS. Simply put, the IRS is looking for this line item of income on your return.

You’ve received a 1099 form from Airbnb and reported your income received (& all of your corresponding expenses) on a Schedule C or Schedule E form. You may have combined it with other income items from hosting, you may have “netted” your rental income against your deductions and reported that net amount on your return, or you may have simply not reported it at all since you rented out your primary residence for less than 15 days. Even if you have no additional tax obligation for your Airbnb transaction, you still cannot ignore your notice. The IRS knows that you received rental income, but they can’t match that line item on your return, or they don’t know how many days you rented the home.

Regardless for the issuance of the notice, the IRS will assess tax, penalties and interest on your 1099 income and unfortunately, you are considered guilty until you can prove yourself innocent. Additionally, the IRS may be looking for an additional line item of tax called “self-employment” income, since Airbnb usually takes the position the you provide services, such as cleaning, in additional to the rental. This is where reporting your income AND deductions right the first time become so important.

If you happen to receive a letter from the IRS, first determine what issues are being addressed. If they are saying that you did not report income (and therefore did not pay any corresponding tax), a phone call, a letter or even an amended return is in order. Remember, you have 30 days to respond to the IRS from the date of the letter, not when you received it. A proper response includes calling the IRS and explaining your situation or writing an explanatory letter.

If all of this seems too daunting, this is where we can come in. It is our experience that in most cases there is no additional tax that is due. Our experts can help you with this scary situation. Whatever your issue is, our job is to straighten it out and keep those tax collectors at bay.