By: Todd Schanel, CFA, CPA, CFP®
on August 15, 2019

Tax Return-Tax Preparation-CPA-JupiterFL-AbacoaThe 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.

Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.
Todd Schanel has been a principal at Schanel & Associates since 2004, where he specializes in financial planning, tax planning and consulting services. He also serves as Founding Principal and Director of Investment Advisory Services at Core Wealth Management, our sister company, where he leads an accomplished professional team offering independent and objective financial advice to help clients achieve their financial goals. Todd has been a CFA Charterholder since 2005, and in 2007 he earned his Certified Financial Planner® designation and became a licensed CPA. In 2015, he earned the Certified Valuation Analyst (CVA) designation.