IRS CP2000 Notice
Income Mismatch? We Fix It.

The AUR program compares information returns (W-2s, 1099s, K-1s) filed by third parties against the amounts reported on your tax return. When the computer detects a discrepancy, it generates a CP2000 notice proposing an adjustment. The program processes millions of returns each year, and the matching is done by computer — no human reviews the case until you respond. This means the proposed adjustment often does not account for offsetting deductions, basis in assets, exclusions, or other factors that would reduce or eliminate the additional tax. The system also does not distinguish between income that was reported on a different line of the return versus income that was not reported at all.

First, do not panic and do not ignore it. Second, read the notice carefully to identify exactly which income items the IRS believes were unreported or misreported. Third, compare the IRS's proposed amounts against your actual tax return and records. Fourth, gather supporting documentation for any items you dispute. Fifth, respond within 30 days with a clear explanation and documentation. Common responses include: providing cost basis for stock sales, showing that income was reported on a different line, providing evidence of a corrected 1099, demonstrating insolvency for cancelled debt, or showing that a distribution was a non-taxable rollover. If the notice is complex or the proposed amount is significant, consult a tax professional before responding.

A CP2000 notice is not an audit — it is an automated matching notice. However, in rare cases, responding to a CP2000 can trigger further IRS scrutiny. If your response reveals other discrepancies, or if the IRS determines that the issues are too complex for the AUR program, your return may be referred for a full examination. This is uncommon, but it underscores the importance of responding carefully and accurately. Your response should address only the specific items in the CP2000, provide clear documentation, and avoid volunteering unnecessary information.

Missing the 30-day deadline does not immediately make the adjustment final. The IRS typically sends a follow-up notice and may extend the response period. However, if you do not respond at all, the IRS will eventually issue a Statutory Notice of Deficiency (90-day letter), which starts the clock on your Tax Court petition deadline. It is always better to respond promptly, but late responses are often still accepted. If you receive a Notice of Deficiency after missing the CP2000 deadline, you still have 90 days to petition the Tax Court.

CP2000 adjustments often include an accuracy-related penalty of 20% under IRC section 6662. This penalty can be challenged using reasonable cause (you had a good reason for the discrepancy) or reasonable basis (you had a reasonable basis for your tax reporting position). Common defenses include reliance on a tax professional, a good-faith belief that income was properly reported, or circumstances beyond your control such as delayed or incorrect information returns from third parties. We routinely challenge CP2000 penalties and have them removed in many cases.