Background and why this happens

The IRS compares the amounts employers, banks, brokers and payment processors report to the amounts taxpayers enter on their returns. When those third-party records don’t line up, the IRS issues an automated income mismatch letter — most commonly Notice CP2000 — proposing a change to your tax return. This is a data-matching tool, not an audit trigger in itself, but ignoring it can lead to penalties, interest, and collections (IRS CP2000 guidance).

How the notice is structured (and what it means)

  • Identification: the notice lists the tax year, the specific types of income that don’t match (for example, wages, nonemployee compensation, or 1099-K card/third-party network transactions), and the source reporting that amount.
  • Proposed change: the IRS shows the amount it received from third parties, the amount you reported, and the proposed tax and balance due after the adjustment.
  • Response options and deadline: the notice includes a response deadline (typically 30 days from the date on the letter) and a return envelope or instructions for where to send your reply.

Immediate steps to take (first 48–72 hours)

  1. Read the notice carefully. Note the tax year, the amounts in question, and the deadline. The notice tells you how the IRS arrived at the proposed change.
  2. Don’t panic. Many CP2000 notices are resolved with simple documentation or a corrected 1099/W-2 from the payer.
  3. Order your IRS account transcript and wage/earnings transcript to confirm what the IRS received. You can view transcripts via the IRS Get Transcript tool or your Online Account (IRS.gov).
  4. Gather documentation that proves your position (see checklist below).

Documentation checklist (what to collect)

  • Your filed tax return for the year in question.
  • Copies of W-2s, 1099-NEC, 1099-MISC, 1099-K, 1099-DIV, and 1099-INT, as applicable.
  • Bank statements, invoices, payment records, or receipts that show when income was earned versus when it was paid (useful for cash-basis taxpayers).
  • Canceled checks, Form 1098 (mortgage interest), brokerage statements, or account statements that support your reported income.
  • Written correspondence from payers (emails or letters) confirming corrected amounts or reasons for differences.
  • If available, a corrected form such as Form W-2c or corrected 1099 from the employer or payer.

Two quick decisions you’ll make in your response

  • Agree with the adjustment. If the IRS is correct, sign the return section or the agreement form supplied, pay the balance (or arrange payment), and keep copies of everything you send. Paying quickly reduces interest and penalties.
  • Disagree with the adjustment. If you disagree, provide a clear explanation and supporting documentation proving why the IRS amount is incorrect, or why you already reported the income elsewhere.

How to respond (step-by-step)

  1. Follow the instructions on the notice precisely. Use the included response form if there is one. Most CP2000 replies must be mailed with a signed statement and supporting documents.
  2. Prepare a cover letter summarizing your position. Include: your name, SSN or ITIN (masked as appropriate on copies), tax year, notice number, and a one-paragraph summary of why you agree or disagree.
  3. Attach supporting documentation in the order mentioned in your cover letter. Put a clear label or tab on each document (W‑2s, corrected 1099s, bank statements, etc.).
  4. If you’re filing an amendment, prepare Form 1040-X and include a copy of the corrected W-2 or corrected 1099. See our guide to filing an amended return for detail and timing. Form 1040-X guidance on FinHelp.
  5. Mail everything by certified mail, return receipt requested, or send via an authorized representative (power of attorney Form 2848). Keep copies of what you mailed and the mailing receipt.
  6. If you agree and owe, pay or set up a payment plan immediately to limit interest and penalties. The notice will include payment instructions and options.

When to ask the payer for a correction

If the payer filed an incorrect W-2 or 1099, ask them to issue a corrected form (W-2c or corrected 1099). Once issued, include that corrected form and a copy of the transmittal showing it was filed when you respond. See FinHelp’s guidance on correcting wages and withholding for practical steps. Correcting W-2/1099 procedures.

Timeframes and what to expect after you respond

  • Response window: The notice typically allows 30 days to reply; confirm the exact date printed on your letter. If you miss the deadline, the IRS may assess the proposed change and send a bill.
  • IRS review: After you send documents, response time varies. If the IRS accepts your documentation, they will send a closing notice showing the adjustment was removed or changed. If they maintain the adjustment, they will send a bill with instructions on appeals.
  • Appeals: If you disagree with the final determination, you can request a Collection Due Process hearing or file a formal appeal (instructions appear with the IRS correspondence). You may also contact the Taxpayer Advocate Service if you face undue delay or hardship (taxpayeradvocate.irs.gov).

Common reasons you might receive one of these letters

  • A 1099 issued to you includes payments that you already excluded because they were paid in a different tax year.
  • A payer mistakenly included gross receipts that were actually refunds or returns.
  • You reported net income after allowable business expenses, while a 1099 shows gross receipts.
  • Duplicate reporting where a payer and a third party both reported the same payment.

Potential costs: penalties and interest

If you owe additional tax after an adjustment, you’ll usually owe interest from the original due date of the return until payment and possibly failure-to-pay penalties. Penalty relief options can include first-time penalty abatement or showing reasonable cause. Discuss penalty-relief options with a tax professional or review IRS penalty relief rules (IRS penalty relief guidance).

When to hire a professional

  • Complex records: if the mismatch involves business accounting, multiple 1099s, or large sums.
  • Collections risk: if the proposed liability is large and you can’t pay.
  • Repeated notices: if you keep getting notices for the same year.

If you hire representation, give the IRS a signed Form 2848 (Power of Attorney). A qualified CPA, EA, or tax attorney can negotiate with the IRS, request collections alternative solutions, or pursue penalty abatement.

Recordkeeping best practices

Keep copies of all tax returns, supporting documents, and correspondence with payers for at least seven years when dealing with income reporting disputes — longer if you rely on those records to support carryforwards, basis, or ongoing tax positions. Document conversations with payers (date, time, whom you spoke with, and summary).

Related FinHelp resources

Authoritative sources and further reading

Professional disclaimer

This article is educational and general in nature. It does not replace personalized tax advice. For a tailored response to an IRS notice, consult a qualified tax professional (CPA, EA, or tax attorney) who can review your records and represent you before the IRS.

Author note

In my years resolving correspondence cases, the single biggest win is preparation: document the source of each dollar and respond before the deadline. Simple corrections from payers or a clear cover letter and supporting documents often stop the notice from becoming a larger tax problem.