If you’ve opened your mail and found a CP2000 notice from the IRS, you’re not alone and more importantly, you’re not necessarily in trouble. Every year millions of taxpayers receive this automated “under-reporter” notice. Despite the scare of receiving mail from the IRS, a CP2000 is not an audit. Instead, it’s the IRS notifying you of a mismatch between information reported to them by third parties and what you included on your tax return. Understanding what the notice means and how to respond can help you avoid unnecessary stress. If you’ve received such a notice and would like help from professional, supportive tax advisors, contact us at Advington Stone today and we’d be happy to chat.
What Is a CP2000 Notice?
A CP2000 notice is generated when the IRS Automated Underreporter (AUR) system detects discrepancies between the information on your tax return and data from employers, banks, brokers, or other financial institutions. Common triggers include:
- Missing or incorrect W-2 or 1099 income
- Unreported investment income
- Incorrect basis reporting for stock sales
- Underreported retirement distributions
- Inaccurate Social Security or dividend reporting
The CP2000 is not necessarily a confirmation that you owe more tax. It is a proposed change based on information the IRS believes to be accurate. The notice includes a comparison of what you reported versus what third parties reported, and it calculates a proposed tax difference along with potential penalties and interest.
Why Did You Receive It?
Most CP2000 notices occur because taxpayers simply overlooked a form or didn’t realize a certain income type needed reporting. This includes:
- Receiving a 1099 form late or losing it
- Not realizing a brokerage reported a sale even if there was no gain
- Having multiple employers during the year
- Receiving foreign income reported to the IRS via FATCA
- Filing early before receiving all information documents
Even small amounts can trigger the automated system, so it doesn’t necessarily indicate a major under-reporting situation.
What to Do When You Receive a CP2000 Notice
- Read the notice carefully.
The CP2000 contains a detailed breakdown of the mismatch. Review the income sources, dates, and amounts to ensure the IRS data is correct. (Remember, the IRS data is not always correct!) - Compare the IRS information with your records.
Pull your W-2s, 1099s, brokerage statements, and other relevant documents. This step is crucial sometimes the IRS data includes incorrect basis information or misattributed income. In practice we’ve also seen situations where statements are accidentally duplicated (same income reported twice) and the IRS doesn’t pick up on it. - Decide whether you agree or disagree.
- If you agree:
Sign the response form, follow the mailing instructions, and pay any tax due. If you can’t pay in full, you can still respond and arrange a payment plan separately. - If you partially agree or disagree:
Provide a clear explanation and supporting documentation. This may include corrected brokerage statements, amended employer forms, or proof of deductions or basis that the IRS didn’t factor in.
- Respond by the deadline.
Typically, you’re given 30 days to reply. Failing to respond may result in the IRS issuing a Notice of Deficiency, which is more formal and shortens your response time. Interest continues to accrue until the issue is resolved. We cannot emphasize this enough, always respond within the given timeframe and never ignore these notices! - Do not submit an amended return unless instructed.
For CP2000 situations, the IRS often prefers documentation rather than a full amended return. This is unless the corrections affect other parts of your tax return. If an amendment is needed, the notice will indicate this.
Should You Contact a Tax Professional?
A CP2000 can be simple or very technical. You should contact us at Advington for help if:
- The IRS data is incorrect or incomplete
- Investment basis or wash sale rules are involved
- You have foreign income or complex brokerage statements
- The proposed change is significant
- The notice spans multiple tax years
A qualified tax professional can review your documents, prepare a clear response, and communicate with the IRS on your behalf to ensure the issue is resolved properly. At Advington we are Enrolled Agents and able to liaise with the IRS on your behalf.
How to Avoid Future CP2000 Notices
- Keep thorough records and wait for all tax documents before filing
- Track employer and account changes
- Confirm income totals and basis information
- Review brokerage statements carefully
- Consider professional tax preparation for complex situations
- Note that sometimes you can’t avoid it and the forms can be due to IRS errors
Final Thoughts
A CP2000 notice is a routine IRS communication but not a penalty in itself and not a signal that you’re being audited. With careful review and a timely response most discrepancies can be resolved smoothly. If the process feels overwhelming, an experienced accounting professional can guide you through every step, ensuring your tax record stays accurate and stress-free. Contact us as Advington today if you’d like support.