USTaxPenaltySaverWhat Is a CP2000 Notice?
A CP2000 notice comes from the IRS Automated Underreporter (AUR) program. The IRS compares information returns filed by third parties (W-2s from employers, 1099-INT from banks, 1099-NEC from clients, 1099-B from brokerages, 1099-K from payment platforms) against what you reported on your tax return. When there is a mismatch, a CP2000 is generated.
The notice is not a bill and not an audit. It is a proposed adjustment. The IRS is saying: 'Based on what others reported about your income, we think your tax return is incorrect. Here are the changes we propose and the additional tax, penalties, and interest that would result.' You have the right to agree, partially agree, or disagree.
CP2000 notices are one of the most common IRS notices. The AUR program processes millions of cases per year. Many CP2000 notices are correct, but a significant number contain errors, especially when income is reported on multiple forms (like receiving both a 1099-K and 1099-NEC for the same income) or when deductions and basis information are not captured by the automated system.
Common Triggers in 2026
Missing 1099 income: If a client or platform sent you a 1099-NEC or 1099-MISC and you did not report that income on your return, you will likely receive a CP2000. This is the most common trigger.
Stock and crypto sales without cost basis: When you sell stocks or cryptocurrency, your broker reports the sale on Form 1099-B. If you do not report the sale on Schedule D, or if you report it without proper cost basis (making it look like all proceeds are gain), the IRS will flag the discrepancy.
1099-K from payment apps: The One Big Beautiful Bill Act (signed July 2025) reverted the 1099-K reporting threshold back to $20,000 and 200 transactions for 2025 and beyond. The previously planned $600 threshold is no longer in effect. However, some payment platforms may still issue 1099-Ks at lower thresholds, and several states maintain their own $600 reporting requirements. Any mismatch between your reported income and these forms can trigger a CP2000.
Retirement distributions: If you took a distribution from an IRA or 401(k) and rolled it over within 60 days, the custodian still reports the distribution on Form 1099-R. If you did not report the rollover correctly on your return, the IRS will treat the entire amount as taxable income.
How to Respond: Step by Step
Step 1: Read the entire notice carefully. The CP2000 includes a summary of proposed changes, an item-by-item breakdown of discrepancies, and a response form. Note the response deadline (30 days from the notice date, not the date you received it).
Step 2: Gather your records. Pull out your tax return for the year in question, all W-2s, 1099s, K-1s, and any supporting documentation. Compare each item the IRS flagged against your actual records.
Step 3: Determine if you agree, partially agree, or disagree. If the IRS is correct about unreported income, you agree. If some items are correct and others are wrong (for example, you have cost basis that reduces the gain), you partially agree. If the entire adjustment is wrong (for example, double-counted income), you disagree.
Step 4: If you agree, sign the response form, calculate your payment, and pay within 30 days to minimize interest. Use our penalty calculator to verify the IRS math on penalties and interest before paying.
Step 5: If you disagree, check the appropriate box on the response form, write a clear explanation for each item, and attach supporting documents (corrected 1099s, brokerage statements showing cost basis, rollover documentation, etc.). Submit via the IRS Document Upload Tool, fax, or mail.
Step 6: If you need more time, call the AUR phone number on your notice and request a 30-day extension before the deadline. The IRS will generally grant one extension.
The 20% Accuracy Penalty
Many CP2000 notices include a proposed accuracy-related penalty under IRC Section 6662. This penalty is 20% of the additional tax the IRS says you owe. On a $5,000 tax increase, that is an extra $1,000 in penalties alone, plus interest on the penalty.
You can request removal of the accuracy penalty by demonstrating reasonable cause and good faith. If you relied on a qualified tax professional, disclosed the relevant information on your return, or made an honest error despite reasonable efforts to comply, the IRS may remove the penalty. Submit your explanation with your CP2000 response.
First-Time Abatement (FTA) does not apply to accuracy penalties. FTA only covers failure-to-file and failure-to-pay penalties. For CP2000 accuracy penalties, you must use the reasonable cause standard.
What If the CP2000 Is Wrong?
CP2000 errors are common. The most frequent scenario is double-counted income. For example, if you are a freelancer and a client pays you $5,000 through PayPal, you may receive both a 1099-NEC from the client and a 1099-K from PayPal for the same $5,000. The IRS sees $10,000 in income reports but you correctly reported $5,000. You need to explain this in your response.
Another common error involves stock sales. Your broker reports the gross proceeds on 1099-B, but if the cost basis was not reported to the IRS (common for stocks purchased before 2011 or transferred between brokers), the IRS may treat the entire sale amount as taxable gain. Provide your purchase records to show the correct basis.
Retirement rollovers are also frequently flagged. A 60-day rollover from one IRA to another generates a 1099-R showing a distribution, but if you completed the rollover, no tax is owed. Provide documentation of both the distribution and the deposit into the new account.
For any disagreement, be specific. Reference the exact line items on the CP2000, explain why each is incorrect, and attach documentation for every item you dispute. The IRS is more likely to accept your response if it is organized and well-documented.
After You Respond
Processing time: After you submit your response, the IRS typically takes 60 to 90 days to review it. Complex cases may take longer. Do not call the IRS about your case until at least 60 days have passed.
If the IRS accepts your response: You will receive a letter confirming no changes or revised changes with a lower amount. If a revised amount is due, pay it promptly to stop interest.
If the IRS rejects your response: You will receive a Statutory Notice of Deficiency (90-day letter). You then have 90 days (150 days if you are outside the U.S.) to petition the U.S. Tax Court to dispute the assessment. This is your last opportunity to challenge the amount before the IRS assesses the tax and begins collection.
Key Takeaways
A CP2000 is a proposed adjustment, not a bill. You have 30 days to respond and the right to disagree. Never ignore a CP2000, as it will automatically become an assessment if you do not respond.
Always verify the IRS numbers. Use our free penalty calculator to check the tax, penalty, and interest calculations. CP2000 errors are common, especially for freelancers, investors, and anyone with multiple income sources.
If you receive a CP2000 with a 20% accuracy penalty, you can request removal based on reasonable cause. Gather your documentation, write a clear explanation, and respond before the deadline.