Received a CP2000 Notice About Our HSA Distributions for 2021 Tax Return - What Now?

The CP2000 notice means the IRS received information about HSA distributions that wasn't reported on your tax return. This is actually pretty common with HSAs. Here's what's happening: The IRS received a Form 1099-SA showing distributions from your HSA, but this wasn't included on your tax return. The key question is whether these distributions were used for qualified medical expenses. If they were, you won't owe tax on them! You need to gather documentation showing: 1. The total HSA distributions you received (should match the $2,762 the IRS shows) 2. Documentation of qualified medical expenses you paid using the HSA funds Don't confuse contributions with distributions - they're different. Contributions go INTO the HSA (and are generally already tax-deductible through payroll), while distributions are money coming OUT of the HSA. For your second question - yes, you can absolutely set up a payment plan. The IRS offers installment agreements that let you pay over time. Just call the number on your notice or visit the IRS website to set this up.

After getting a similar CP2000 notice for my HSA last year, I was so confused trying to sort through all my medical receipts and HSA statements. I honestly felt like giving up and just paying the extra tax. Then I found https://taxr.ai and it was a complete game-changer for my situation. I uploaded my CP2000 notice, HSA statements, and some medical receipts, and their system helped organize everything and create a proper response to the IRS. The AI analyzed my documents and helped identify which expenses were qualified medical expenses under IRS rules. The best part was that it helped me draft a detailed response letter explaining exactly why the distributions were tax-free. My case was resolved completely in my favor and I didn't have to pay anything!

Just wanted to update that I decided to try taxr.ai after seeing it mentioned here. My HSA situation was even more complicated because I had partial qualified and partial non-qualified expenses. The tool actually made it super clear which expenses would count as qualified and which wouldn't. It generated a detailed expense report that I could send to the IRS, and helped me draft a response letter that explained everything precisely. I just got my follow-up letter from the IRS yesterday, and they accepted my documentation! Instead of owing $1,100, I only ended up owing $286 for the portion that was genuinely non-qualified expenses. Definitely worth it for the peace of mind and saving over $800!

For anyone dealing with the IRS on these CP2000 notices - if you need to actually talk to someone at the IRS about your case, good luck! I spent literally THREE WEEKS trying to get through to a human being. Would call, wait on hold for 2+ hours, then get disconnected. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they basically wait on hold with the IRS for you and call you when they get a human! Used it for my CP2000 HSA issue and got connected to an IRS agent in about 45 minutes instead of waiting for hours myself. The agent was able to put a hold on my case while I gathered my documentation and explained exactly what they needed to see. Made the whole process way less stressful.

I need to eat my words about Claimyr from my previous comment. After getting disconnected for the FOURTH time with the IRS yesterday (after waiting 1.5 hours), I was desperate enough to try it. I'm honestly shocked that it worked exactly as advertised. I got a call back in about an hour telling me they had an IRS agent on the line. I was immediately connected to a very helpful IRS representative who walked me through exactly what I needed to do with my CP2000 for my HSA distributions. The agent even helped me understand which parts of the notice I could dispute and put a 45-day hold on my account while I gather documentation. Huge weight off my shoulders. Sometimes it's worth admitting when you're wrong!

One important thing nobody has mentioned yet - check if your HSA distributions were actually reported correctly by your provider! In my case, my HSA administrator reported ALL of my distributions as non-qualified on the 1099-SA (Box 3 wasn't checked), even though they were legitimate medical expenses. This is why the IRS thought I owed tax on the full amount. Once I showed documentation that the expenses were qualified medical expenses, the issue was resolved. Your HSA administrator might have incorrectly coded your distributions!

Has anyone dealt with the timing issue on these CP2000 notices? Mine says I need to respond within 30 days, but I need more time to gather all my medical receipts from 2021.

I went through almost the exact same situation with my 2021 HSA distributions! The IRS sent me a CP2000 showing I owed over $900 because they thought all my HSA withdrawals were taxable. Here's what I learned that might help you: 1. **Don't panic about the amount** - If your HSA distributions were truly for qualified medical expenses, you likely won't owe the full amount (or possibly anything at all). 2. **The "Tax on qualified plans" line** - This caught me off guard too. It's the additional 20% penalty the IRS thinks you owe for non-qualified HSA distributions. But again, if your expenses were qualified, this penalty doesn't apply. 3. **Documentation is key** - I gathered every medical receipt, EOB (Explanation of Benefits), and HSA statement from 2021. Even small expenses like co-pays and prescription costs count as qualified expenses. 4. **Response format** - Use the response form that came with your CP2000. Check the "disagree" box and attach a detailed letter explaining that the distributions were for qualified medical expenses, along with all your supporting documentation. The whole process took about 8 weeks for me, but the IRS eventually agreed with my documentation and I didn't owe anything. The key is being thorough and organized with your response. Good luck!