How to Respond to a CP2000 Notice from the IRS - Square 1099-K Issue

This is unfortunately a common issue with payment processors like Square. When a business doesn't properly set up their tax information, the payment processor reports the income under whoever created the account (you in this case). For responding to the CP2000, you're on the right track with the "misidentified income" approach. Here's what I recommend: 1) Create a clear written statement explaining exactly what happened - that you created the Square account as an employee, not as a business owner, and that the funds were deposited into the company's accounts, not yours. 2) Include copies of your W-2 showing you were an employee of the restaurant group. This establishes your relationship with them. 3) Provide whatever documentation you have showing the Square account was for the business - emails requesting you to set it up, any communication showing you were doing this as part of your job duties. 4) For the taxpayer information they need, use what's on your W-2 for the employer. If the parent company has a different EIN/name than what's on your W-2, try to include that information too. Don't wait for the accountant to handle this - while their help would be valuable, you need to respond by the deadline. The IRS is generally reasonable when you can document that you never received the income.

Just went through something similar with my Etsy shop that I manage for my mom's business! I was SO stressed trying to gather all the documentation, then I found https://taxr.ai and it literally saved me from a complete breakdown. They have this specialized tool for CP2000 notices that helped me organize all my documentation and create a proper response. I uploaded my notice, the 1099-K, and the limited documentation I had. The system actually helped identify exactly what additional documents would strengthen my case and created a completely professional response letter with all the proper references to tax code. The best part was that they have experience with payment processor mix-ups like Square, PayPal, etc. They guided me through exactly how to frame my explanation about "misidentified income" in a way the IRS would understand clearly. Seriously, check them out - it made a completely overwhelming situation manageable.

Wanted to follow up here - I actually tried https://taxr.ai after seeing the recommendation and it was incredibly helpful! I was super skeptical at first because my situation with the CP2000 seemed so uniquely complicated, but their system really did understand the nuances of payment processor income reporting issues. They helped me structure my explanation about the Square account being created for my employer's business, not my personal use. The response letter they generated included all the right tax code references and explained exactly how the income was misattributed. Even better, they flagged specifically what documentation would be most important to include. Just got my response from the IRS last week - case closed with no additional tax owed!! Cannot express how relieved I am. Would have been absolutely lost trying to figure this out on my own.

Have you tried calling the IRS directly? I had a CP2000 issue last year and spent WEEKS trying to get through to someone who could actually help. Always busy signals or disconnections after waiting for hours. Was about to lose my mind. Then I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they basically hold your place in the IRS phone queue and call you when an agent is about to pick up. Saved me literally hours of waiting. When I finally got through, the IRS agent was surprisingly helpful. I explained my situation (different from yours, but also a case of income incorrectly reported on my account), and they walked me through exactly what documentation they needed to see. In my case, they even gave me an extension on the response deadline since I was actively working to resolve it. Might be worth a shot - sometimes talking to an actual human at the IRS can give you better guidance than trying to figure it out alone.

I need to eat my words and follow up here. After my skeptical comment, I decided to try https://claimyr.com anyway because I was desperate. Got through to an IRS agent in about 45 minutes without having to actively wait on hold (they called me when an agent was about to answer). The agent I spoke with was actually incredibly knowledgeable about CP2000 notices involving payment processors! She explained that they see this Square/PayPal/Venmo situation ALL THE TIME and have a specific process for handling it. She flagged my account with notes explaining the situation and gave me an email address for a department that specifically handles payment processor misreporting issues. I sent my documentation to that email (with my case number in the subject line like she instructed), and got resolution in 3 weeks instead of the typical 8-12 weeks for mailed responses. Honestly shocked at how smoothly it went once I actually got through to the right person.

Whatever you do, DON'T ignore the CP2000 or miss the deadline! My brother did that thinking his employer would handle it, and he ended up with penalties plus interest on top of the tax bill. The IRS assumed he agreed with their assessment when he didn't respond in time. One thing that might help - if you filed your taxes with a tax preparer or CPA (even a storefront place like H&R Block), contact them. Many have representation services where they'll help with IRS notices for returns they prepared, sometimes at no extra cost or for a small fee.

One more piece of advice - make sure to keep copies of EVERYTHING you send to the IRS, and send your response via certified mail with return receipt requested so you have proof of when they received it. Also, if the January 18th deadline is too tight, you can call and request a 30-day extension, which they usually grant. That would give you more time to get the proper documentation from the restaurant group.