Quick overview

Income mismatch notices cover a range of IRS communications that arise when third‑party information (employers, banks, brokers, and payers) doesn’t line up with what you filed. The best‑known example is the CP2000 (Notice of Proposed Adjustment), but similar notices can flow from the Automated Underreporter (AUR) program or other reporting reconciliations. These letters are not audits by themselves — they are invitations to reconcile records and, if needed, correct your return.

Sources: IRS CP2000 guidance (https://www.irs.gov/individuals/questions-and-answers-cp2000-notice) and AUR program info (https://www.irs.gov/individuals/underreporter-program).

How these notices work

  • The IRS compares information returns it receives (Forms W‑2, 1099‑MISC/NEC, 1099‑INT, 1099‑B, etc.) to the income reported on your tax return.
  • If the numbers don’t match, the system generates a proposed adjustment and sends a notice with the IRS’s proposed change, the tax impact, and a response deadline (typically 30 days).
  • If you do nothing, the IRS can assess the change and begin collection activity. Responding with documentation can avoid or reduce penalties and interest.

Notices beyond CP2000 — what to watch for

  • Automated Underreporter (AUR) letters: generated when automated systems detect underreported income. These often lead to CP2000-style notices but may include additional follow-up.
  • CP2001/CP3219A and other codes: some letters look similar but have different legal effects (CP3219A is a statutory notice of deficiency). If you see a different code, read the included instructions and deadlines carefully.

Practical steps to respond (a checklist)

  1. Read the notice carefully and note the deadline (usually 30 days). The deadline controls appeal rights and when the IRS may assess the proposed change. IRS CP2000 FAQs.
  2. Compare the IRS’s figures to your filed return and to your third‑party documents (W‑2s, all 1099s, broker year‑end statements, Schedule C records).
  3. If the IRS is correct, sign the response and pay the proposed additional tax or arrange a payment plan.
  4. If the IRS is wrong, gather supporting documents (pay stubs, corrected 1099, bank records, invoices) and write a concise explanation. Mail copies as instructed on the notice.
  5. If you need to change your return, file an amended return (Form 1040‑X) with supporting schedules and include a cover letter referencing the notice.
  6. Keep copies of everything you send; use certified mail or tracked shipping if mailing original documents.
  7. If you cannot meet the deadline or if the amount is large, consult a tax pro and consider contacting the Taxpayer Advocate Service for unresolved problems.

In my practice, the most common success is a one‑page cover letter plus a corrected 1099 or a statement from the payer. Organized, clear evidence usually resolves discrepancies without penalties.

Common scenarios and tips

  • Self‑employed individuals: Compare 1099‑NEC/MISC to bookkeeping. Missing invoices or duplicate entries create the most confusion.
  • Investment income: Brokers report cost basis and proceeds; mismatches often come from incorrect basis data. Ask your broker for corrected 1099‑B or year‑end statements.
  • Employer errors: If a W‑2 is wrong, ask the employer for a corrected W‑2 (Form W‑2c) and send a copy to the IRS with your response.

Pitfalls to avoid

  • Don’t ignore the notice — nonresponse often results in assessment, added interest, and collection letters.
  • Don’t send originals unless requested; send photocopies and retain originals.
  • Don’t guess: if you’re unsure why the IRS shows different income, request a transcript from the IRS or talk to the payer.

When to dispute vs. amend

  • Dispute if you have documentation proving the IRS’s third‑party report is incorrect (corrected 1099, broker statement, payer letter).
  • Amend if your original return omitted income or contained entry errors. Use Form 1040‑X and clearly reference the notice.

Useful internal resources

Bottom line

Income mismatch notices are fixable in most cases if you act promptly, provide clear documentation, and correct genuine errors quickly. Early, organized responses reduce the risk of unnecessary penalties and streamline resolution.

Professional disclaimer: This article is educational and not individualized tax advice. For advice tailored to your situation, consult a qualified tax professional. Authoritative sources include the IRS CP2000 page and AUR materials (irs.gov).