What should you do after receiving an IRS adjustment letter related to income changes?

Receiving an IRS adjustment letter can feel alarming, but most letters are resolvable with a structured response. Below is a practical, step‑by‑step guide I use in practice with clients who receive income‑related adjustments, plus what documentation and timelines matter, dispute and appeal options, and when to get help.

Quick understanding: types and sources

• Many income adjustments start with a data‑match: the IRS compares what you reported on Form 1040 with third‑party information returns (W‑2, 1099‑NEC, 1099‑INT, 1099‑DIV, 1099‑B, etc.). If something doesn’t match, you may get a CP2000 or similar notice (see IRS CP2000 guidance) (IRS: https://www.irs.gov/individuals/cp2000-notice).
• Other letters could be math error notices, notices of deficiency, or correspondence related to amended returns. Every notice has a code and instructions—read those first (IRS, “Understanding Your IRS Letters”: https://www.irs.gov/individuals/understanding-your-irs-letters).

For more background on the CP2000 process and common underreported income notices, see our CP2000 notice guide (internal: CP2000 Notice).

Step‑by‑step actions (what to do first)

1. Pause and read the notice carefully.

• Note the letter/notice code at the top (e.g., CP2000, CP11, CP3219A). This determines your response options.
• Read the proposed changes, the explanation, and the deadline for response.

1. Don’t ignore deadlines.

• Many notices request a response within 30 days; statutory notices (e.g., Notice of Deficiency) have different procedural deadlines. Missing a deadline can reduce your options to dispute. If you need more time, request it in writing immediately.

1. Compare the IRS’s data to your records.

• Pull the tax return for the year in question and the third‑party documents the IRS cites (W‑2s, 1099s, brokerage statements).
• Look for data entry errors, duplicate reporting, or a mis‑assigned taxpayer identification number by the payer.

1. Decide whether you agree, partially agree, or disagree.

• If you agree, follow the notice’s instructions to accept the adjustment and pay any balance or request a revised refund.
• If you disagree, prepare a clear, organized rebuttal with documentation.

How to prepare your response (what to include)

• Use the response form included with many notices (CP2000 includes a response portion). If there isn’t a form, send a letter that references the notice code and the tax year.
• Provide copies—not originals—of supporting documents: corrected 1099/W‑2, bank records, corrected payer statements, Form 1099‑B cost basis records, or an account statement showing the transaction was assigned to someone else.
• Attach a concise, numbered explanation that maps to each line the IRS changed (“IRS says $X; here is why we disagree and supporting doc #1 shows…”).
• If you are sending many pages, include a contents page and Bates‑stamp or label pages to make review easier.
• Sign and date the response. If a tax professional signs, include a power of attorney (Form 2848) if you want the tax pro to represent you directly.

Practical documentation checklist

• W‑2s, 1099s, corrected 1099s or W‑2Cs
• Broker statements showing trades, proceeds, and cost basis
• Bank statements or deposit records
• Receipts, invoices, business logs (for self‑employed income)
• Form 4852 (substitute for W‑2) only when you cannot obtain a corrected W‑2

In my practice, the most common resolution path is a short letter plus a corrected 1099 or broker statement; clear payer documentation resolves many CP2000s within weeks.

How to send your response

• Follow the address and delivery method in the notice. Use the return envelope if one is provided.
• If you mail documents, send them certified mail with return receipt or via a tracked courier and keep copies of everything.
• Some notices include an online response path or phone number for questions—use what the notice prescribes.

If you agree with the change

• Pay any tax, interest, and penalties shown, or arrange a payment plan if you cannot pay in full (IRS Online Payment Agreement). Interest continues until the balance is paid in full.
• If the adjustment creates a refund, verify that the refund will be issued automatically or whether you must accept it in writing.

If you disagree: dispute, appeal, or litigation options

• Initial dispute: Send the evidence and explanation within the notice timeframe. The IRS will review and either accept your documentation or issue a revised notice.
• If the IRS issues a statutory notice of deficiency (e.g., CP3219A), you have the right to petition the U.S. Tax Court within the time frame stated (typically 90 days for U.S. residents). Petitioning Tax Court preserves the right to challenge the deficiency before assessment.
• If you can’t resolve the issue via correspondence, you can request Appeals consideration through the IRS Independent Office of Appeals (see IRS Appeals info and procedures) (internal: Taxpayer Rights When Interacting with IRS Agents).
• If you experience financial hardship or systemic processing problems, contact the Taxpayer Advocate Service for case assistance (Taxpayer Advocate Service: https://www.taxpayeradvocate.irs.gov/).

Timing and what to expect

• Simple documentation disputes often resolve in 30–90 days after receipt of your response. Complex cases—large adjustments, identity issues, or cases that go to Appeals—can take months.
• Keep careful records of all communications and dates. If you are represented by a paid preparer or attorney, make sure they are listed on Form 2848 so they can speak with the IRS on your behalf.

Common mistakes to avoid

• Sending original documents—always send copies.
• Failing to map documents to the IRS’s proposed changes; scattershot evidence slows resolution.
• Waiting to respond because you ‘‘think it will go away.’’ Issues can become enforced and penalties can accrue.
• Mailing materials without retaining proof of mailing or tracking.

When to hire a professional

Consider hiring a CPA, EA, or tax attorney if:

• The proposed change is large or affects multiple years.
• The IRS has issued a statutory notice of deficiency.
• You need representation at Appeals or Tax Court.

In my practice, I recommend an early consult when proposed income increases are material or when the payer has acknowledged an error but the IRS has not updated its records. Early professional involvement often shortens the resolution timeline and reduces penalties.

Sample response outline (one‑page template)

1. Reference: Notice code, tax year, IRS notice ID.
2. Statement: I disagree/partially disagree/agree with the proposed adjustment.
3. Point‑by‑point rebuttal: Number each IRS line change and attach corresponding supporting document IDs.
4. Request: Ask the IRS to accept the correction, provide a revised calculation, or confirm next steps.
5. Contact info and signature.

Useful resources and internal guides

• IRS: Understanding Your IRS Letters (how notices work and next steps): https://www.irs.gov/individuals/understanding-your-irs-letters
• IRS: CP2000 notice details and FAQs: https://www.irs.gov/individuals/cp2000-notice
• Taxpayer Advocate Service: https://www.taxpayeradvocate.irs.gov/

Internal FinHelp guides (quick reads):

• CP2000 Notice (https://finhelp.io/glossary/cp2000-notice/)
• How to Dispute an IRS Notice (https://finhelp.io/glossary/how-to-dispute-an-irs-notice/)
• Understanding IRS Correspondence: Letters, Notices, and Bills (https://finhelp.io/glossary/understanding-irs-correspondence-letters-notices-and-bills/)

Final practical tip

Respond promptly and professionally. A clear, well‑documented reply—organized, signed, and tied directly to the IRS’s proposed changes—resolves most income adjustment letters without escalation.

Disclaimer: This content is educational and general in nature. It does not constitute tax advice for any individual situation. For advice tailored to your circumstances, consult a qualified tax professional such as a CPA, enrolled agent, or tax attorney.