How to Write a CP2000 Disagree Letter
Effectively respond to an IRS CP2000 notice by understanding the discrepancy and presenting a clear, evidence-based case to resolve the proposed tax adjustment.
A CP2000 notice from the Internal Revenue Service (IRS) proposes changes to your tax return. It is not a formal audit or a bill, but an automated letter generated when information from third parties, like employers or banks, does not match the income or deductions you reported. The IRS’s Automated Underreporter (AUR) system identifies this discrepancy by comparing figures from forms like W-2s and 1099s against your filed return. A CP2000 is a proposal, not a final determination, and you can dispute the adjustments if you believe they are incorrect.
Analyzing Your CP2000 Notice
Carefully review the entire CP2000 notice. The notice details the discrepancies in a multi-column format, showing the amounts you reported, the amounts reported to the IRS by a third-party payer, and the difference between the two. This section will identify the payer by name and ID number and specify the form type, such as a W-2 or 1099, that triggered the notice.
The notice also includes a calculation of proposed additional tax, which may include penalties and interest. The IRS may assess a 20% accuracy-related penalty on the tax increase, and interest is calculated from the original due date of the tax return. It is important to locate the response deadline, 30 days from the date on the notice, as failing to respond in time can lead to the IRS issuing a formal Statutory Notice of Deficiency.
Preparing Your Disagreement Response
Your response package has three main components. The first is the response form included with your CP2000 notice. On this form, you must check the box that clearly indicates you do not agree with some or all of the proposed changes. If you filed a joint return, both you and your spouse must sign and date the form.
The second component is a detailed letter of explanation. This letter should be professional and factual, stating that you disagree with the proposed changes. Address each disputed item from the CP2000 notice individually, explaining why the IRS’s information is incorrect. For instance, if a 1099-B from your broker did not report the cost basis for a stock sale, you would explain, “The 1099-B for the sale of 100 shares of XYZ Corp. did not include my cost basis of $5,000. As shown in the attached brokerage statement, my actual gain was $2,000, not the $7,000 in proceeds proposed as taxable income.”
The final component is the supporting documentation that proves your claims. Examples of documents include corrected W-2s or 1099s from payers, brokerage statements showing the cost basis for security transactions, or bank statements proving that certain deposits were non-taxable gifts or loans. If you are claiming additional deductions related to the unreported income, such as business expenses, you must provide receipts or logs.
How to Submit Your Response
Before sending anything to the IRS, make a complete copy of the entire package for your personal records. This includes the signed response form, your explanation letter, and every page of the supporting documentation. Having a full copy is important for your records and in case of future correspondence with the IRS.
The CP2000 notice will specify the exact IRS address or fax number for your response. Use only the address or fax number provided on the notice to ensure it reaches the correct Automated Underreporter unit handling your case. It is recommended to use a trackable delivery method. Using USPS Certified Mail with Return Receipt provides proof of mailing and a receipt confirming the date the IRS received your package.
What to Expect After Responding
After submitting your disagreement, IRS response times can be lengthy, often taking 60 to 90 days or more. There are a few potential outcomes.
If the IRS agrees with your explanation and evidence, you will receive a letter confirming that the issue is resolved and that no additional tax is due. This effectively closes the case.
The IRS may also require more information to make a final decision. The agency will send a letter requesting specific documents or further clarification on points made in your response. It is important to respond to this request as promptly and completely as possible.
If the IRS reviews your response and still disagrees with your position, it will issue a Statutory Notice of Deficiency, also known as a “90-day letter.” This formal notice gives you 90 days from the date on the letter to file a petition with the U.S. Tax Court if you wish to continue your dispute. If you do not petition the Tax Court within that 90-day window, the proposed tax assessment becomes final, and the IRS will begin collection actions.