What Is a CP2000 Notice?

A CP2000 is an automated IRS notice that proposes additional tax because the income, payments, or credits reported on your tax return do not match information reported to the IRS by third parties — employers (W-2s), banks and brokers (1099s), or other payers.

This is not a bill. It is a proposed assessment — the IRS is asking you to either agree with its proposed changes, disagree and provide an explanation, or partially agree.

The CP2000 process is called the Automated Underreporter (AUR) program, and it generates millions of notices every year.

Common Causes of a CP2000

  • Unreported 1099 income — freelance work, consulting fees, bank interest, investment dividends, stock sales, cryptocurrency transactions
  • Missing W-2 — you may have had multiple employers and missed one
  • Retirement account distributions — 1099-R distributions that were not reported
  • Cancellation of debt income — if a lender canceled debt and issued a 1099-C
  • Social Security benefits — if you received Social Security and had other income that made a portion taxable
  • Stock or investment sales — capital gains from brokerage accounts (1099-B) not reported on Schedule D
  • State tax refunds — if you itemized deductions the prior year and received a state refund

How to Read the CP2000

The notice will show:

  • The tax year in question
  • Each income item the IRS believes was not properly reported
  • The IRS's proposed additional tax, along with penalties and interest
  • A response deadline (typically 60 days from the notice date)
  • A response form included with the notice

Compare the IRS's figures to your original tax return and your actual records. Sometimes the IRS's data is correct and the return contained an error. Sometimes it is wrong — for example, the IRS may propose tax on gross 1099 proceeds without accounting for your cost basis, resulting in a wildly inflated proposed assessment.

Responding to a CP2000

If you agree: Sign and return the response form (or respond online if directed to IRS.gov). Pay the proposed amount or set up a payment plan. The notice becomes the final assessment.

If you partially agree: Indicate which items you agree with, provide an explanation and documentation for items you dispute, and make payment for any agreed portion.

If you disagree: Respond in writing explaining why you disagree, and include supporting documentation: brokerage statements showing cost basis, evidence the income was reported elsewhere on the return, or proof the income is not taxable.

Response deadline: The standard response window is 60 days from the notice date. If you need more time, a tax professional can contact the IRS on your behalf to request an extension — it is frequently granted.

If You Do Not Respond

If you do not respond within the deadline, the IRS will issue a Statutory Notice of Deficiency (CP3219A or CP3219N) — a formal 90-day notice. During those 90 days, you can file a petition with the U.S. Tax Court to dispute the assessment without paying first. After 90 days with no response or petition, the IRS formally assesses the tax and you lose appeal rights without payment.

Penalties That May Apply

If the CP2000 results in additional tax, the IRS may add:

  • Accuracy-related penalty — 20% of the underpayment, if the understatement exceeds the greater of 10% of the correct tax or $5,000
  • Failure-to-pay penalty — 0.5% per month on the new balance
  • Interest — from the original due date of the return

Getting Cost Basis Credit

One of the most common CP2000 issues involves investment sales reported on 1099-B forms. The IRS may see $50,000 in stock sale proceeds and propose tax on the full amount — when your actual gain after subtracting your cost basis may be much smaller or even a loss.

Always respond with a Schedule D showing the correct cost basis and gain/loss calculations. The AUR program often generates inflated proposals because it works from gross proceeds without cost basis data. Find out your options for responding to a CP2000 by clicking here.