How to Handle IRS Notices (Including CP2000): A Practical Guide to Responding, Documenting, and Resolving
Getting a letter from the IRS can be unsettling, but most notices are routine communications that can be resolved without panic. Whether you received a CP2000 proposing changes to your return, a notice about a math error, or a bill for unpaid tax, understanding what the notice means and how to respond promptly will protect you from unnecessary penalties, interest, or escalation. This guide walks you through the common types of IRS notices, why they happen, how to check whether the IRS is correct, and the exact steps to take to resolve the issue.
Common IRS notices and what they mean
CP2000: Proposed changes based on third‑party information
The CP2000 notice is one of the most common. It’s generated when the IRS receives information from employers, banks, brokers, or other third parties (W-2s, 1099s, 1098s) that doesn’t match what you reported. Importantly, CP2000 is not a bill. It proposes changes and shows proposed additional tax, penalties, and interest if you accept the adjustments.
Math error or missing form notices
Notices for math errors (often listed as “Notice 386” or similar) or missing forms typically correct calculation mistakes or ask for a missing schedule or form. These are usually straightforward: the IRS explains the discrepancy and the correction it made or requests additional documentation.
Balance due and notice of intent to levy
When the IRS believes you owe tax, it sends a notice that indicates the amount due. If ignored, the IRS may follow with notices of intent to levy or lien notices. These are serious and require timely action to avoid asset seizure or liens on property.
Audit and examination letters
Audit letters (examination notices) request more information about items on your return. They may ask for receipts, invoices, or logbooks. Audits can be correspondence audits (handled by mail) or field audits (in‑person). Read the notice carefully to know which type you face and what documents are requested.
Why notices happen: common triggers
Most IRS notices arise from data mismatches or missing information. Typical causes include unreported 1099/1098/1099‑INT/1099‑DIV income, incorrect Social Security numbers, math mistakes on returns, claimed credits lacking substantiation, and identity theft. Third‑party reporting means the IRS often has records that differ from your filing — and the IRS will notify you first before assuming wrongdoing.
Step‑by‑step: How to respond to an IRS notice
1. Read the notice carefully and note deadlines
Every notice states the issue, the IRS’s proposed action, and the deadline for response. Deadlines vary, but many CP2000 letters give 30 days to respond. Missing a deadline can limit your options, so calendar the date immediately.
2. Verify authenticity
Confirm the notice is real. Most IRS notices arrive by mail (the IRS rarely initiates contact by email). Check the IRS phone number and notice number on the letter and compare to information on IRS.gov. If a caller demands immediate payment over the phone, it may be a scam — call the IRS directly using the number on their site or the number printed on the notice.
3. Compare the IRS information to your return
Look at your filed return and the third‑party forms the IRS lists. Did you receive an additional 1099? Did you forget to include an account or freelance income? Sometimes the IRS has mistaken information (e.g., incorrect dollar amounts reported by a payer) — these are resolvable with documentation.
4. Gather documentation
Collect W‑2s, 1099s, bank statements, brokerage statements, receipts, cancelled checks, invoices, business ledgers, mileage logs, or proof of payment/credits. For CP2000 disputes, show proof that the income was reported or that the amounts are different from the IRS’s records.
5. Decide whether to accept or dispute
If the IRS is correct, sign the response and pay the proposed amount or set up a payment arrangement. If you disagree, prepare a clear written explanation and attach copies of supporting documents. For math errors, show corrected calculations. For unreported income you actually reported, attach pages of your return and the relevant 1099/W‑2 to prove reporting.
6. Respond in writing, and keep proof
Return the IRS response form included with the notice, or send a letter explaining your disagreement. Include copies (never originals) of supporting documents. Mail by certified mail with return receipt or use secure online channels if the notice provides an e‑response option. Keep copies of everything you send and the proof of mailing.
7. Follow up and appeal if necessary
If the IRS reaffirms its position and you still disagree, you have appeal rights. The notice will explain how to request a conference with the IRS Office of Appeals. Appeals can resolve disputes without going to tax court. If you are unable to resolve the matter or face something more serious, consider hiring a CPA, enrolled agent, or tax attorney.
When to pay, when to set up a payment plan
If you accept the proposed tax, pay by the deadline to avoid or reduce penalties and interest. If you can’t pay in full, the IRS offers options: short‑term payment plans (120 days or less) and long‑term installment agreements. You can apply online if the amount falls within the IRS thresholds, or call the number on the notice. If paying would cause economic hardship, contact the IRS or Taxpayer Advocate for alternatives; in extreme scenarios, you may explore an Offer in Compromise, though it has strict eligibility rules.
Penalties and interest: what to expect
The IRS charges interest on unpaid tax from the due date until paid, compounded daily. Penalties vary: failure‑to‑pay penalties are a percentage of the unpaid tax; accuracy‑related penalties apply for substantial understatement. Responding promptly and paying as much as possible reduces penalties and interest accrual.
Records to keep and how long
Keep tax returns and supporting documents for at least three years from the date you filed (or two years from tax payment, whichever is later). If you omitted more than 25% of your gross income, the statute extends to six years. Keep records indefinitely if you suspect fraud or never filed. Digitize records and maintain organized folders for W‑2s, 1099s, receipts, business records, bank statements, and prior correspondence with the IRS.
Common mistakes that trigger notices — and how to avoid them
Simple errors often lead to notices: failing to report 1099 income, typos in Social Security numbers, math errors, missed forms, or claiming credits without documentation. Reconcile all third‑party forms before filing. Use tax software with built‑in checks or work with a tax pro for complicated returns. For freelancers and gig workers, log income continuously and issue 1099s if required. Accurate recordkeeping and early filing reduce the odds of receiving an IRS notice.
When to get professional help
If the notice involves a substantial amount, a proposed audit, allegations of fraud, liens, levies, or if you’re unsure how to respond, hire a qualified tax professional (EA, CPA, or tax attorney). Professionals can communicate with the IRS on your behalf, negotiate payment plans, file appeals, or represent you in collections. If you’re on a tight budget, the Taxpayer Advocate Service offers free help in cases of financial hardship or systemic issues with the IRS.
Tips for communicating with the IRS
When you call, have the notice, your Social Security number, and recent tax returns handy. Take careful notes: date, time, the employee’s name, and a summary of the conversation. If you must mail documents, use certified mail and include a cover letter that clearly states what you are providing and why. Keep all replies organized and dated.
Receiving an IRS notice doesn’t mean you’re automatically in trouble. It usually means the IRS has a question or a mismatch to resolve. Act quickly, verify the information, gather supporting documents, and respond within the stated timeframe. If you accept the IRS’s proposed change, pay or set up a payment plan to stop additional penalties and interest. If you disagree, present a clear, documented case and use the appeals process if needed. Good recordkeeping, reconciling your forms before filing, and seeking professional advice when appropriate will shrink your chances of future notices and give you confidence if one does arrive.