The Automated Underreporter (AUR) Program is an IRS automated system designed to identify discrepancies between the income and tax amounts taxpayers report and the information provided to the IRS by third parties such as employers and financial institutions. By cross-checking these data sources, the IRS can efficiently spot potential underreporting or mismatches, ensuring taxpayers pay the correct amount.
Background and Purpose
Established in the 1970s, the AUR Program was created to enhance tax compliance by automating the detection of income reporting errors without manual audits of every tax return. The program leverages data from W-2s (wages), 1099 forms (interest, dividends, freelance income), and other third-party reports, which are electronically submitted to the IRS. This automation allows IRS enforcement efforts to focus on returns with a high likelihood of discrepancies.
Prior to the AUR Program’s implementation, many underreported income cases went unnoticed unless a random audit was triggered. The AUR system narrows down cases based on concrete data mismatches, improving enforcement efficiency.
How the AUR Program Works
- Data Collection: The IRS receives wage and income reports including W-2s, various 1099 forms, and other informational returns from employers, banks, and businesses.
- Matching Process: IRS computer systems automatically match these third-party reports with the income, deductions, and credits claimed on your filed tax return.
- Flagging Discrepancies: If the reported amounts do not align—or if claimed deductions or credits are unusually high compared to income—the system flags your return.
- IRS Notification: The IRS typically sends a CP2000 Notice (see our CP2000 Notice guide) detailing the discrepancies and proposed adjustments to your tax liability.
- Taxpayer Response: You have the option to agree and pay the proposed additional tax, or dispute the findings by providing an explanation or documentation. You may also file an amended return if corrections are needed.
Common Examples of AUR Triggers
- Reporting $40,000 in wages when your employer submitted a W-2 showing $50,000.
- Forgetting to include $300 of interest income reported on a 1099-INT.
- Claiming business expenses that seem disproportionate to your reported income.
Who Can Be Affected?
The AUR Program applies broadly to all federal taxpayers but especially impacts employees, independent contractors, investors, and small business owners because employers and financial institutions submit their earnings to the IRS. Any mismatch between these reports and your return can trigger AUR.
How to Avoid AUR Issues
- Accurate Reporting: Include all W-2s, 1099s, and other income forms you receive.
- Maintain Records: Keep pay stubs, bank statements, 1099 forms, receipt records, and other documentation.
- Review Return Carefully: Use exact figures from the provided tax forms—do not estimate.
- Respond Promptly: If you receive a CP2000 or other IRS notice regarding discrepancies, respond by the deadline to avoid penalties and interest.
- Professional Help: Consider consulting a tax professional if you need assistance responding or disputing an AUR notice.
Addressing Common Misunderstandings
- “No form means no reporting needed.” The IRS receives third-party income reports so you must report all taxable income, even if you never receive a form.
- “AUR notice is an audit.” The AUR process is a pre-audit automated review, not a formal audit.
- “Ignoring notices has no consequences.” Failing to respond can result in additional tax, penalties, and interest.
Frequently Asked Questions
What if I disagree with the AUR findings?
You can dispute the IRS’s proposed changes by sending a written explanation and any supporting documentation. If accepted, adjustments will be reversed or modified.
Does the AUR Program cover all types of audits?
No. The AUR focuses mainly on income mismatches and related tax corrections. Other audit issues, such as deductions or credits not related to income matching, may trigger separate audits.
What happens if I respond late?
Delayed responses can increase penalties and interest on the balance due. Respond as soon as possible.
Summary Table: Automated Underreporter (AUR) Program
| Topic | Details |
|---|---|
| Purpose | Identify underreported income |
| Trigger | Mismatch between IRS third-party data and tax return |
| IRS Communication | CP2000 or related notices (learn about the CP2000 Notice) |
| Taxpayer Action | Review discrepancies, agree and pay, dispute, or amend return |
| Consequences | Penalties, interest, additional tax assessments if ignored |
| Common Issues | Unreported wages, missing interest/dividends, questionable deductions |
| Best Practices | Accurate reporting, prompt response, good recordkeeping |
For more details on responding to IRS notices, see our How to Respond to an IRS Notice guide.
References
- IRS Automated Underreporter Program information (IRS.gov search recommended)
- IRS CP2000 Notice details: https://www.irs.gov/individuals/cp2000-notice-informational-letter
- Investopedia: Automated Underreporter (AUR) Program
- Consumer Financial Protection Bureau, Taxpayer Rights: https://www.consumerfinance.gov/ask-cfpb/category-tax/
The AUR Program helps the IRS ensure everyone reports income accurately. If you receive an AUR notice, handle it promptly by reviewing the information and responding with documentation or corrections to resolve the matter efficiently.