What Is a CP2000?
The CP2000 is not technically an audit notice, although it functions like one. It is generated by the IRS Automated Underreporter (AUR) program, which compares the income reported on your return against the information returns filed by employers, banks, brokerages, and other payers. When there is a mismatch, the system generates a CP2000 proposing additional tax based on the unreported income.
Why You Received It
The most common reason is unreported income. An employer filed a W-2 or 1099 showing income that does not appear on your return. A bank reported interest income you forgot to include. A brokerage reported stock sales you did not report. The IRS system flagged the discrepancy and generated the notice.
However, a CP2000 is not always correct. The IRS may not know about offsetting deductions, cost basis on stock sales, or tax-exempt income that was incorrectly reported on an information return. This is why you should never blindly agree to a CP2000 without reviewing it against your records.
How to Respond
You have 30 days to respond. Your response should do one of three things: agree with the proposed changes, partially agree, or disagree. If you agree, sign the response form and return it with payment or a request for a payment plan. If you disagree, submit a written explanation with supporting documentation showing why the IRS's proposed changes are wrong.
Common defenses include proving that income was already reported on a different line of the return, providing cost basis for stock sales that the IRS calculated at zero, showing that a 1099 was issued in error, or demonstrating that you are entitled to deductions or credits that offset the additional income.
What Happens If You Do Not Respond
If you do not respond within the deadline, the IRS will assess the additional tax as proposed. You will receive a statutory notice of deficiency (CP3219A), giving you 90 days to petition Tax Court. If you miss that deadline too, the tax is assessed, and you will receive collection notices.
The Stakes
CP2000 adjustments often involve substantial amounts because the IRS calculates the tax on unreported income without considering any deductions or credits you may be entitled to. A $50,000 unreported 1099 can generate a proposed tax bill of $15,000 or more, even if your actual additional tax liability is zero after accounting for cost basis or other adjustments.
Never pay a CP2000 without checking the math. The IRS only knows what was reported to them. You know the rest of the story.