Got a CP2000 in the Mail? Read This Before Panicking
An IRS CP2000 notice isn't an audit. It's a math disagreement. Here's exactly what to do and what not to do.
Few pieces of mail spike a pulse like an envelope with the IRS logo. If you've opened it and seen the words CP2000, take a breath. This is one of the most common letters the IRS sends, and it's not an audit.
A CP2000 is an automated under-reporter notice. The IRS's computers cross-referenced what your employer, bank, broker, or contractor reported (your W-2s and 1099s) against what you put on your return — and the numbers disagreed. The notice proposes an adjustment, plus interest, plus possibly a penalty.
What to do first: read the notice carefully. It will list exactly what the IRS thinks you missed. Sometimes it's right (you forgot a 1099 from a brokerage). Sometimes it's wrong (you reported the income on a different line, or the 1099 itself was incorrect).
What not to do: ignore it. The proposed change becomes assessed if you don't respond by the deadline (usually 30 days). After that, the IRS can begin collection.
Three possible responses:
1. You agree. Sign the response form, pay (or set up a payment plan), and you're done. The case closes.
2. You disagree. Send a letter explaining why, with documents that support your position. Common examples: the 1099 double-counts income already reported on your W-2; the income was reported on a Schedule C under a different name; the broker reported gross proceeds without basis.
3. You partly agree. Pay what you owe on the parts you accept; explain and document the rest.
Penalties: the standard accuracy penalty is 20% of the underpayment. It can sometimes be abated for first-time filers or reasonable cause. Don't write a check including the penalty before exploring this.
If the dollar amount is meaningful, get a tax professional involved. CP2000s are routine — meaning the IRS has scripted responses, and an experienced preparer knows the exact language to use. We've responded to hundreds. Most close in our client's favor.
And one more thing: respond by mail with tracking, or fax. Never just call. You want a paper trail.