Background
The IRS sends compliance notices to verify that taxpayers’ returns match information the agency receives from employers, banks, and other third parties. Notices can be automated (e.g., income mismatches) or the result of manual review. In my practice working with individuals and small-business owners, most notices are resolvable with clear documentation and a prompt response.
Common reasons the IRS issues a compliance notice
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Discrepancies in income reporting: The IRS compares the income you report to forms it receives (W-2, 1099, etc.). If those amounts differ, you may get a notice (for example, reporting $60,000 while third-party forms show $70,000). These mismatches often produce a CP2000 or similar notice (IRS guidance on notices: Understanding IRS Notices and Letters).
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Missing or insufficient documentation: Deductions and credits that lack receipts or supporting documents (charitable gifts, business expenses, education credits) commonly trigger requests for proof.
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Math or filing errors: Simple typos, incorrect Social Security numbers, or calculation mistakes can generate a correction notice.
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Identity verification and suspected fraud: If the IRS sees signs of identity theft or unusual filing patterns, it may send identity-verification letters or place a hold while it confirms the filer’s identity.
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Unfiled returns or late payments: If you haven’t filed for a year the IRS expects, or you owe taxes and haven’t paid, you can receive notices about balances, penalties, and collection steps.
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Audit or examination selection: Some notices start the audit process or request additional records for an income, deduction, or credit that appears out of the ordinary.
Practical examples and quick fixes
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Unreported 1099 income: If a 1099-MISC/NEC or 1099-K was omitted, compare the IRS-provided amounts, amend the return if needed, and submit supporting documentation.
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Charitable deduction questioned: Provide donation receipts or bank records showing the gift date and amount. For noncash donations, use Form 8283 rules when required.
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Math error: If the IRS corrected a calculation and lowered your refund or raised your balance, you can accept the change or provide documentation to dispute it.
How to respond (step-by-step)
- Read the notice carefully: Notices explain the issue, the tax year affected, and the deadline to respond. Don’t ignore the deadline—interest and penalties can accrue (see timelines in our guide: Timeline and Deadlines Shown on Common IRS Notices).
- Verify the information: Compare the IRS figures to your tax return and third-party forms.
- Gather documentation: Bank records, paystubs, receipts, and the original forms (W-2, 1099) are typical evidence.
- Reply exactly as instructed: Some notices require a written response by mail; others allow secure online handling. Use the contact info on the notice.
- Pay or set up a plan if you owe: If the change results in a balance due, pay promptly or set up an installment agreement (see IRS payment-plan options at the IRS site and our resources on payment plans: How to Build a Successful IRS Payment Plan).
When to get professional help
- The notice involves a large balance or potential penalties.
- The IRS proposes adjustments you believe are incorrect.
- You suspect identity theft or complex multi-year issues.
In these cases, a tax professional can prepare a response, represent you before the IRS, or help negotiate payment options.
Common mistakes to avoid
- Ignoring the notice: Silence rarely makes the notice go away and can lead to enforced collection.
- Overcorrection: Filing an unnecessary amended return before assessing the IRS claim can complicate resolution.
- Sending incomplete documentation: Provide clear, labeled proof and reference the notice ID number.
Additional resources
- Read how to interpret and respond to notices: Decoding IRS Notices: How to Read and Respond.
- If you need to prioritize multiple notices, our short action plan helps you focus your response: How to Read and Prioritize Multiple IRS Notices at Once.
Authoritative sources and links
- IRS, “Understanding IRS Notices and Letters”: https://www.irs.gov/understanding-irs-notices-and-letters
- IRS, “Payment Plans in Installments”: https://www.irs.gov/payments/payment-plans-in-installments
Professional note and disclaimer
In my experience, most compliance notices are routine and resolvable when handled promptly. This article is educational and not a substitute for personalized tax advice. If you have a complex notice, consult a qualified tax professional or an enrolled agent.
Keywords: IRS compliance notice, CP2000, income mismatch, notice response, IRS payment plan
