CP2000 Notice

Detailed Explanation

A CP2000 is NOT an audit. It is a proposed adjustment generated automatically by the IRS Automated Underreporter (AUR) computer system, which matches information returns (W-2s, 1099s, 1098s, 1099-DA, K-1s) against the corresponding line items on the filed Form 1040. When the totals do not match, the system issues a CP2000 proposing additional tax, often with the proposed assessment, accuracy-related penalty (20% of the underpayment under IRC §6662), and interest. The notice typically arrives 12 to 24 months after filing. The response window is 30 days from the notice date (extended to 60 days if the taxpayer is overseas). The taxpayer can: (1) agree fully and pay or set up an installment agreement, (2) partially agree and explain, or (3) disagree and provide documentation. The IRS reviewer then issues a CP2000 Notice (Tax Decision) accepting, modifying, or maintaining the original proposal. Failure to respond within the window triggers a Statutory Notice of Deficiency (Letter 3219, also called the "90-day letter"), after which the only path to dispute is US Tax Court within 90 days, or paying first and filing for a refund. Many CP2000 notices are wrong: missing basis on Form 8949 stock sales (broker reports proceeds but no basis), RSU double-counting (W-2 wages already include RSU income, but a 1099-B shows the sale separately), 1099-K for personal payments mistakenly issued, K-1 distributions reported as taxable when basis should reduce the gain. A clear written response with proper documentation resolves most of these without paying additional tax.