The automated underreport (AUR) unit of the IRS screens tax returns for mismatches between the income shown your tax return and the income reported to the IRS by third parties such as banks, brokerage firms, employers and other taxpayers.
If there is a mismatch, the AUR unit will most likely send a computer-generated letter known as a CP 2000 notice. In addition to informing the taxpayer of the mismatch, the notice proposes additional tax due resulting from the under-reported income.
Here is what you need to know about the AUR program.
What kinds of income does the IRS match to my tax return?
The IRS first does a quick match of your W-2 to your tax return before issuing any refunds.
Other kinds of income are matched several months after you file your tax return. This income includes:
- 1099-INT, 1099-DIV or 1099-B from bank accounts and investments
- 1099-S from the sale of real estate
- 1099-SA for Social Security benefits
- 1099-MISC for payments received as a contractor or rent income
- 1099-R for retirement or pension income
- K-1 from a partnership or S-corporation
- Distributions from HSAs.
In addition to income items, the IRS may also check certain deductions, such as mortgage interest.
Extra income is not a matching problem
Matching is only a problem if your tax return reports less than the amount reported to the IRS. If you report too much income, you will not get a notice.
What do I do if I get a Notice CP 2000?
Don’t panic, just bring the underreporter notice to our office and we can review the notice and help prepare a response.
If after our review we determine that the IRS is correct or partially correct, we will perform an analysis of how the underreported income impacts your taxes due. It’s not uncommon for the IRS to be correct that there is under-reported income, but incorrect in the proposed additional tax.
If the IRS is entirely incorrect, you will still need to respond to the notice, usually within 30 days. In that case, we can help you prepare a response that includes the necessary documentation along with a written explanation.
If you have any questions about how AUR notices work, or if you do receive a notice, contact us and we will be happy to assist.