Overview

Information returns are filed by payers — employers, banks, payment processors, and others — to report payments they made to you. The IRS uses those third‑party records to cross‑check individual and business tax returns. When the figures don’t line up, automated matching systems often trigger a notice (for example, a CP2000), an account adjustment, or an audit referral. (See IRS guidance on information reporting and CP2000.)

How matching works, in plain language

  • Payers submit forms (W‑2, 1099 series, 1098, 1099‑K, 1099‑NEC, 1099‑INT, 1099‑DIV, 1099‑C and others) to the IRS and provide copies to recipients.
  • The IRS loads those records into its information return files and compares the amounts reported there with the amounts taxpayers enter on their tax returns.
  • Automatic mismatches—differences above a tolerance threshold—are routed to examiners or generate a notice asking the taxpayer to explain or correct the return. (IRS: Understanding your tax information reporting requirements.)

Why information returns are effective

  • Third‑party reporting reduces opportunities to conceal income because the IRS receives independent records from payers.
  • Many payments are reported electronically and at scale, so discrepancies are easy to detect across millions of returns.

Common notices and outcomes

  • CP2000 / proposed changes: When the IRS’s records don’t match your return, you may get a CP2000 proposing additional tax owed. Respond promptly with documentation or an amended return if needed. (IRS: Notice CP2000 guidance.)
  • Math or account adjustments: Small mismatches can be fixed without a full audit but may still create balances due.
  • Audits or referrals: Persistent or large discrepancies can lead to audits or collection actions.

Typical reasons for mismatches

  • Missing one or more information returns (you didn’t include income reported on a 1099).
  • Reporting a different payer amount than the information return shows (e.g., netting expenses incorrectly or mixing personal and business receipts).
  • Data entry errors, duplicate forms, or corrected 1099s sent after you filed.
  • Characterization differences (tax‑exempt vs. taxable proceeds, or reimbursements reported as income).

Practical steps to prevent or resolve problems

1) Reconcile before you file: Compare every information return you receive to your records. If numbers differ, contact the payer for a corrected form. For marketplace or payment‑card income, reconcile 1099‑K and 1099‑NEC amounts with your books. See our guide on reconciling 1099‑K transactions for practical steps: How to Reconcile Form 1099‑K Transactions With Your Records.

2) If you receive a notice: Read it carefully and meet the response deadline. Collect corroborating records (bank statements, invoices, contracts) and either accept the proposed change, dispute it with proof, or file an amended return. Our walkthrough for responding to multiple information returns can help: Responding to a CP2000 When You Have Multiple 1099s and W‑2s.

3) Correct information returns: Ask the payer to issue a corrected form when the payer reported wrong amounts or misclassified payments. If a payer refuses or won’t respond, document your outreach and consult a tax professional.

4) Report income even without a form: You must report all taxable income whether or not you receive an information return. If a form is missing, use your records to report income and keep proof of how you calculated it. See our article on handling missing 1099s for steps: Handling a Missing 1099: Steps to Report Income and Avoid Penalties.

Common taxpayer mistakes to avoid

  • Ignoring small forms because they seem immaterial — the IRS frequently matches even small amounts.
  • Failing to update books after receiving corrected 1099s.
  • Assuming payer classification is always correct; worker classification errors can cause a later mismatch.

In my practice

Over 15 years working with taxpayers I’ve seen three recurring themes: small omissions compound when you have multiple payers; corrected forms sent late create surprise notices; and clear, timely documentation almost always resolves proposed changes without penalties. Getting ahead of reconciliation is the best prevention.

Authoritative resources

Professional disclaimer

This article is educational and does not replace personalized tax advice. For guidance tailored to your facts, consult a CPA, enrolled agent, or tax attorney.

Further reading (FinHelp)