Overview

When the IRS issues an underreporter inquiry—commonly the CP2000 notice—it is proposing an adjustment because information it received from employers, payers, or third‑party reporting services does not match your tax return. A CP2000 is not a formal audit but a proposed change; you must respond within the time window shown on the notice to accept, dispute, or supply additional information.See IRS CP2000 guidance. In my 15 years as a CPA, the taxpayers who resolve these notices fastest follow one rule: organize evidence first, then craft a brief, factual response.

What the IRS expects in a response

The IRS expects a concise, documented explanation. Your package should include:

  • A completed response section of the CP2000 (or a cover letter referencing the CP2000 case number).
  • A clear statement indicating whether you agree or disagree with each proposed adjustment.
  • Copies (never originals) of supporting documents that prove or explain the discrepancy.
  • If you agree with the change, a signed agreement and payment or a request for a payment plan using the IRS Online Payment Agreement if necessary.See IRS payment options.

Do not send original documents. Always keep certified copies and a log of what you mailed and when.

Evidence checklist (document types and how to use them)

Organize documents into logical groups and label them. Each document should be dated, legible, and accompanied by a short note describing how it supports your position.

Employment income

  • W-2 forms and the employer’s corrected W-2 if one exists. If the employer made a clerical error, obtain a corrected W‑2 (Form W‑2c) and include correspondence with the employer.
  • Pay stubs covering the tax year to show gross pay and withholdings.
  • Employer correspondence confirming paid bonuses, commissions, or stock compensation adjustments.

Self‑employment and freelancing

  • 1099‑NEC/1099‑MISC forms and the payer’s records. If a payer filed a 1099 in error, get written confirmation and a corrected 1099.
  • Client invoices, signed contracts, Statements of Work (SOWs), and email confirmations tying payments to services.
  • Bank deposit records showing payments received and business‑use categorization.

Investment, interest, and dividend income

  • 1099‑INT, 1099‑DIV, and brokerage statements. If a broker shows different totals, obtain a year‑end statement and a transaction ledger.
  • Dividend reinvestment or wash sale documentation where applicable.

Rental and other income

  • Lease agreements, rent rolls, and receipts; bank deposits showing rental receipts; expense schedules supporting net income on Schedule E.

Other supporting items

  • Canceled checks and bank statements showing cleared deposits.
  • Third‑party correspondence proving adjustments or credits.
  • Copies of previously filed returns (if amending is the right remedy).

How to assemble the response (step-by-step)

  1. Read the CP2000 carefully and note the tax year, proposed adjustments, and the response deadline. The CP2000 usually gives 30 days, but read the notice for the exact date.IRS CP2000 details.
  2. Create a cover letter or a short response form referencing the CP2000 case ID. State clearly whether you agree or disagree with each line item and why.
  3. For each contested item, attach a labeled evidence packet: e.g., “Item A: Wages — Employer W‑2 and pay stubs (January–December).”
  4. Number pages and include a contents page. Use tabs or separators so the IRS reviewer can quickly match your documents to the CP2000 line items.
  5. If you disagree and the evidence is complex, include a one‑page factual summary laying out timelines and calculations.
  6. Send copies and mail via certified mail with return receipt or another trackable service. Keep digital copies of everything sent.

When to amend a return vs. provide evidence

If your original return is correct and you have documentation, respond with evidence—do not amend. If you discover an error on your return after reviewing the CP2000, prepare and file an amended return (Form 1040‑X) and include the amended figures in your response package.

Common scenarios and recommended evidence

  • Employer overreported wages: Request a corrected W‑2 (W‑2c) from the employer; include employer correspondence and pay stubs.
  • Missing 1099 for freelance income you did report: Provide invoices and bank deposit records showing that income was included on Schedule C and tieable to the payment source.
  • Duplicate reporting by a payer: Provide payer communications and transaction histories demonstrating duplication; ask the payer to issue a corrected 1099.

Real‑world example from practice
I handled a CP2000 where a client’s brokerage reported a sale that was later reversed due to a settlement correction. The brokerage had filed a 1099‑B with gross proceeds that the client never received. We provided the corrected year‑end statement, the broker’s email confirming the correction, and a one‑page summary reconciling the broker’s report to the client’s bank records. The IRS accepted the evidence and removed the proposed adjustment.

Timelines, follow‑up, and escalation

  • Response window: Follow the date on the CP2000; it commonly allows 30 days to respond but confirm on each notice.IRS CP2000 guidance.
  • Processing time: After the IRS receives your response, it can take several weeks to months to process depending on complexity. Track all correspondence and allow at least 60–90 days in standard situations.
  • If you disagree and the IRS remains unpersuaded, you may be able to request an appeal through the IRS Independent Office of Appeals. Keep records of your attempts to resolve the matter at the examination level.

Practical tips to reduce friction

What to avoid

  • Do not ignore the notice. Unanswered CP2000 notices typically convert to a proposed assessment that can accrue penalties and interest.
  • Do not send original records. The IRS does not return originals unless specifically requested.
  • Avoid speculative explanations. Stick to documentary evidence and concise factual statements.

Penalties and reasonable cause

If the IRS proposes additional tax and you agree, penalties and interest may apply. If you disagree due to reasonable cause (for example, reliance on incorrect third‑party data or a payer’s error), document the basis for reasonable cause and request penalty relief in writing. The IRS evaluates reasonable cause on the facts and circumstances; providing contemporaneous evidence and a clear narrative improves the chance of abatement. For general taxpayer rights and remedies, refer to the IRS Taxpayer Bill of Rights.IRS Taxpayer Bill of Rights.

Recordkeeping recommendations going forward

  • Retain year‑end statements, pay stubs, invoices, and supporting bank records for at least three years; in cases of potential understatement or fraud, longer retention may be prudent.IRS recordkeeping guidance.
  • Reconcile third‑party reports (1099s and W‑2s) to your books each year before filing. A simple quarterly check reduces downstream CP2000 exposure.

Professional disclaimer

This article is educational and does not substitute for personalized tax advice. Consult a licensed CPA, EA, or tax attorney to analyze your CP2000 or underreporter inquiry and to represent you before the IRS when appropriate.

Sources and further reading