How to read an IRS Notice of Adjustment

An IRS Notice of Adjustment arrives when the IRS changes information on your filed tax return after processing. The notice explains what changed, why it changed, and how the change affects your refund, balance due, or tax liability. Reading the notice carefully and taking timely action—if needed—prevents surprises like a reduced refund, additional taxes, or penalties.

In my 15+ years advising clients, the most common causes for adjustment notices are mismatches between what taxpayers reported and third‑party information returns (W‑2s, 1099s), math errors, ineligible credits or deductions, or missing forms. Many notices are simple corrections; some require documentation or an appeal. Always use the contact information and notice number printed on the letter when you respond.

(For an overview of IRS notices and letters, see the IRS page “Understanding Your IRS Notice or Letter” for guidance on specific notice types: https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter.)

Key sections on the notice and what they mean

  • Identification block: Your name, address, and the last four digits of your Social Security number or taxpayer identification number. Verify these first.
  • Notice or letter ID: A code (e.g., CP16, CP2000, Letter 3219B) or a notice number in the upper right. This tells you the notice type and often the action required. If it’s unclear, call the number printed on the notice; do not use phone numbers from other websites.
  • Explanation of adjustment: A plain‑English (and often technical) explanation of why the IRS changed an amount—examples include unreported income, disallowed credits, or math corrections.
  • Amounts before and after: Shows the original figure from your return, the revised figure, and the difference. It also shows the new balance due or refund amount.
  • Response instructions and deadline: If the IRS needs documents or a reply, the notice lists what to send, how to send it, and the deadline. Deadlines matter—missing them can limit appeals options.
  • Payment or refund instructions: If you owe money, the notice will describe how to pay and any penalties or interest that may apply. If it reduces or increases a refund, the notice will explain how the change was handled.

Step-by-step read-through (how I walk clients through a notice)

  1. Confirm identity and tax year. Check the tax year and the last four of the SSN/ITIN. If the notice is not for you, write “Not my tax return” and follow the IRS instructions.
  2. Note the notice code and read the explanation paragraph. The code narrows down the common causes and the expected remedy (for example, CP2000 typically involves unreported income from third‑party forms; Letter 3219B is a statutory notice of deficiency).
  3. Reconcile figures with your copy of the return and supporting docs. Pull the W‑2s, 1099s, receipts, and worksheets you used when filing and compare them to the numbers on the notice.
  4. Decide whether to agree or disagree. If you agree and owe money, follow payment instructions. If you agree and are due a larger refund, check whether the IRS applied the overpayment or will mail a check.
  5. If you disagree, gather supporting documents and follow the appeal or response instructions. Appeals rights vary by notice type and are typically stated on the notice.
  6. Keep a copy of everything you send to the IRS and send materials by certified mail or other traceable method when possible.

Common types of adjustment notices you might see

  • CP2000 (proposed changes based on third‑party info such as 1099s). This is a proposed change and not an assessment; you can agree, disagree, or provide documentation. See FinHelp’s guide on steps to take for CP2000 notices for more detail: Steps to Take When You Receive a Notice of Proposed Adjustment (CP2000).
  • CP16 (adjustments and overpayment application). Used when the IRS makes computational changes and applies overpayments.
  • Letter 3219B (statutory notice of deficiency). This is a formal notice proposing adjustments and giving you the right to petition U.S. Tax Court; treat this seriously and contact a tax professional if received.

For help with appealing adjustments, FinHelp’s walkthrough on appeals can be useful: How to Appeal a Notice of Proposed Adjustment.

What to include when you respond

  • A copy of the notice (keep the original but include a photocopy).
  • A cover letter that states you disagree (or agree), the tax year, and the notice number.
  • Clear copies of supporting documents (W‑2s, 1099s, receipts, court orders, adoption papers, or corrected forms). Label documents so the IRS reviewer can follow your logic.
  • Your daytime phone number and return mailing address.

Send responses according to the instructions on the notice. If a notice gives a PO Box address, use it rather than the general IRS mailing address listed on the website.

Timelines, penalties, and interest

Deadlines on the notice are important. For CP2000 and many other notices, you typically have 30 days to respond to avoid immediate collection or to preserve appeal rights—review the specific notice text to confirm. If you end up owing taxes, penalties and interest may apply from the original due date of the return. For formal deficiency notices (e.g., Letter 3219), you usually have 90 days to file a petition with the U.S. Tax Court (150 days if outside the U.S.). Always confirm timelines printed on your notice.

(IRS source: see general guidance on notice types and response rights at https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter.)

Practical examples from practice

  • Client A received a CP2000 showing additional non‑employee compensation. The taxpayer had miscoded a Form 1099‑NEC as personal income. We provided a copy of the corrected business ledger and bank records and showed that a portion of the reported amount had been paid to a subcontractor with a 1099; the IRS adjusted the proposed change.
  • Client B got a CP16 that reduced a refund due to an arithmetic error. The notice explained the correction and applied an overpayment to a prior year balance. We verified the math, found the discrepancy in a worksheet, and accepted the correction.

These examples show the value of keeping clear records and responding within deadlines.

Common mistakes to avoid

  • Ignoring the notice. Even small notices can become bigger problems if left unattended.
  • Sending blank or incomplete documentation. Provide clear, labeled evidence and a concise cover letter.
  • Using the wrong mailing address or failing to reference the notice number.
  • Assuming the IRS is always correct. If you have credible documentation, you can and should contest an incorrect adjustment.

Frequently asked questions (short answers)

  • Will a Notice of Adjustment increase my refund? Sometimes. Adjustments can go both ways depending on whether the IRS finds underreported income or missed credits.
  • Can I pay in installments if I owe? Yes. If you owe and cannot pay in full, you can request an installment agreement. See FinHelp’s resources on payment options and installment agreements for steps to apply.
  • Should I contact a tax pro? If you don’t understand the reason for the change, if the dollar amounts are large, or if you receive a statutory notice (Letter 3219B), consult a qualified tax professional.

Sources and further reading

Additional FinHelp resources:

Professional disclaimer

This article is educational and not individualized tax advice. For a tax issue that affects you, consult a qualified tax professional or contact the IRS using the phone number on your notice. Laws and IRS procedures can change; verify current rules at IRS.gov before acting.

If you’d like, FinHelp can help you locate the specific notice code and recommended next steps for your situation—see our glossary pages linked above for deeper how‑to guides.