Quick overview

An IRS notice claiming your reported income doesn’t match its records typically results from an information-return mismatch — the IRS compares third‑party forms (W‑2, 1099 series, 1099‑K) against your filed return and flags differences. Notices range from routine proposed adjustments (CP2000) to requests for clarification. Most discrepancies are innocent — missing forms, simple math errors, or payer reporting mistakes — and can be resolved by documenting your income and responding promptly.

(For official guidance on IRS notices see: IRS — Understanding Your IRS Notice or Letter: https://www.irs.gov/individuals/understanding-your-tax-notice-or-letter)

Practical, step-by-step actions to resolve a mismatch

  1. Read the notice carefully and note deadlines
  • Identify the notice type (CP2000 is a common one proposing changes). The notice will list the tax year, the income the IRS has on file, and the income you reported.
  • Note the response deadline and whether the IRS already adjusted your account. Missing a deadline can limit options.
  1. Don’t panic — gather your paperwork first
  • Collect W‑2s, all 1099s (1099‑NEC, 1099‑MISC, 1099‑INT, 1099‑DIV, 1099‑K), bank statements, brokerage statements (Form 1099‑B), Schedule C records, and any corrected forms (W‑2c, corrected 1099s).
  • If you use tax software or a preparer, retrieve the PDF or transcript of the filed return.
  1. Match IRS figures to your records
  • Compare line‑by‑line: the IRS will show payer name, payer TIN, and amount. Confirm whether the payers and amounts match your copies.
  • Common causes: missing freelance income, duplicate reporting by a payer, amounts reported on 1099‑K for gross receipts that differ from net business income, or employer clerical errors.
  1. If the IRS is correct, decide how to respond
  • Accept the adjustment: sign and return the form the IRS sends, or pay the balance by the date shown. If you can’t pay in full, request a payment plan (IRS Online Payment Agreement) or consider an Offer in Compromise only if you meet the strict criteria. (See IRS payment options: https://www.irs.gov/payments)
  1. If you disagree, document and dispute the notice
  • Prepare a clear response packet: a cover letter explaining your position, photocopies (not originals) of supporting documents (W‑2s, corrected 1099s, bank records, invoices, receipts), and a computation showing how you arrived at the reported income.
  • Mail the response as instructed on the notice. Keep proof of mailing (certified mail or USPS tracking). Many CP2000 responses are accepted by mail; follow the notice instructions exactly.
  1. Contact payers to correct reporting errors
  • If a payer sent the IRS an incorrect 1099/W‑2, ask them to file a corrected form (1099‑CORRECT or W‑2C) and provide you with a copy. Attach a copy of the correction to your response.
  1. Consider a tax professional for complex cases
  • If the discrepancy is large, involves multiple years, or triggers other notices, engage a CPA, EA, or tax attorney. Representation can reduce the chance of mistakes and let professionals communicate with the IRS on your behalf.

How to handle the common scenarios

  • Missing 1099/1099‑K: If you received a 1099 that you didn’t report, confirm whether that income is taxable (some 1099‑K amounts reflect gross receipts but you may have deductible expenses). Recalculate net income and provide schedules showing expenses (Schedule C) and documentation.

  • Duplicate or incorrect reporting: If a payer mistakenly issued duplicate 1099s, get a corrected 1099 and include it with your response. If the payer refuses, include correspondence showing your attempt to resolve the error.

  • Employer W‑2 mistakes: Ask the employer for a W‑2c. If they won’t cooperate, maintain correspondence and your payroll records and seek professional help.

Deadlines, proof, and responding correctly

  • Follow the exact mailing address and instructions on the notice. If a response requires a signature or specific forms, include them.
  • Proof of mailing matters — send responses with tracking or certified mail and keep copies of everything. If you must hand deliver, get a dated receipt.
  • Keep a chronological file of all letters, phone calls (who you spoke to, date, time, and employee name/ID when available), and copies of mailed materials.

(See IRS guidance on responding to notices: https://www.irs.gov/individuals/understanding-your-tax-notice-or-letter)

Penalties, interest, and abatement options

  • When the IRS proposes an increase in tax, interest will accrue on the unpaid balance from the original due date. Penalties may also apply for underpayment or late payment.
  • You can request penalty relief (abatement) for reasonable cause — documented emergencies, serious illness, or reliance on incorrect written advice are common bases. First‑time penalty abatement is also possible for eligible taxpayers.

For more on penalty relief see: FinHelp glossary on penalty abatement (guide):

And the IRS page on penalty relief: https://www.irs.gov/payments/penalty-relief

When the IRS adjusts your return without your response

  • If you do not respond or fail to convince the IRS, they may adjust your return and send a bill. You’ll have collections options but fewer dispute rights after an adjustment. Always respond within the timeframe the notice provides.

Preventing future mismatches (practical habits)

  • Keep copies of every W‑2 and 1099 you receive and reconcile them with year‑end bank and broker statements.
  • If you are a freelancer or gig worker, track gross receipts and deductible expenses separately (use accounting software or simple ledgers) so you can show net income if a 1099 reports gross amounts.
  • Confirm payers’ TIN and name on form copies; mismatched TINs can trigger IRS mismatches.

Real‑world examples (short)

  • Example 1 — Freelance income: A client received a CP2000 citing $10,000 in unreported income where the payer issued a 1099‑NEC. The taxpayer provided invoices, a bank deposit ledger, and a corrected 1099 from the payer showing $2,000 less; the IRS accepted the correction and reduced the proposed adjustment.

  • Example 2 — 1099‑K confusion: A small seller’s 1099‑K showed gross receipts; after submitting a Schedule C with documented business expenses and bank records showing net income, the IRS revised the assessment.

Authoritative IRS sources referenced in this article:

FAQs (short answers)

Q: What if I never received a 1099 that the IRS shows?
A: Request a copy from the payer; check your bank/brokerage statements. If you still can’t get it, include evidence of your income and efforts to obtain the form in your response to the IRS.

Q: Can the IRS really make me pay based on third‑party records?
A: Yes — the IRS uses information returns from third parties to cross‑check returns. If their records are accurate, you’ll generally have to pay tax, interest, and possibly penalties unless you can prove otherwise.

Q: Is it worth hiring a tax pro?
A: For simple mismatches you may resolve it yourself. For large amounts, multi‑year issues, or suspected identity problems, a tax pro (CPA/EA/tax attorney) can save time and reduce risk.

Professional disclaimer

This article is educational and not tax or legal advice. Your situation may have unique facts; consult a qualified tax professional (CPA, EA, or tax attorney) for personalized advice.

If you’re ready to respond to a notice but want a checklist or a template response, see FinHelp’s step‑by‑step CP2000 response guide: https://finhelp.io/glossary/responding-to-a-cp2000-notice-steps-to-take/