Got an IRS CP2000 notice? Here's what it means — and how to respond.
Take a breath. A CP2000 is a proposal, not a final bill — and the proposed amount is often higher than what you actually owe. Here's the plain-English version, and exactly what to do next.
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The short version
- A CP2000 is a proposed adjustment, not a bill.
- Most CP2000 notices overstate the amount actually owed, because the IRS counts gross proceeds without subtracting cost basis.
- You have the right to disagree with a CP2000 and respond with a correction.
- NoticeFiled reads your CP2000 and generates a ready-to-sign response letter for $97.
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What a CP2000 actually is
A CP2000 is a notice the IRS sends when the income reported on your tax return doesn't match what someone else — an employer, a bank, a brokerage — reported about you. Their computers compare the two automatically. When a number is missing or different, the system generates a CP2000.
The key word is proposed. A CP2000 is a Notice of Proposed Changes (sometimes called an underreporter or "AUR" notice, for Automated Underreporter). It is not a final bill, and it is not an audit. It's the IRS saying: based on what we have, here's what we think changes — tell us if we're wrong.
Why the amount is so often too high
Here's the part most people never hear: the IRS only sees one side of the story. It sees the money that came in, because a third party reported it. It does not see what you paid, what you already reported elsewhere, or anything that would lower the number. So the proposed amount assumes the worst-case version of your year.
That's why a large share of CP2000s overstate what's really owed. The notice isn't lying — it's just incomplete. Your job (or ours) is to fill in the missing side.
A classic example: a stock sale counted as if it were all profit.
Say your broker reported that you sold $12,000 of stock. The IRS sees that $12,000 and, with nothing else to go on, can treat the entire amount as taxable income.
But you don't owe tax on the whole $12,000 — only on the gain, the part above what you originally paid for the shares (your cost basis). If those shares cost you about $11,500, the taxable piece is a small fraction of what the notice assumes. The IRS simply didn't have your cost basis. Supply it, and the proposed amount can fall sharply.
What's true (and what isn't)
- It's not an audit. A CP2000 is an automated document-matching notice, not an examination of your whole return.
- You don't have to just accept it. You can agree, partially agree, or disagree — and explain why, with documents.
- Ignoring it doesn't make it go away. If you don't respond by the deadline, the IRS can finalize the proposed amount as if it were correct.
- The numbers can be wrong or incomplete. Missing cost basis, income you already reported, or a payer mix-up are all common and fixable.
How to respond, step by step
- Read the notice and find the response deadline — usually about 30 days from the date on the letter.
- Go line by line through the proposed changes and check each one against your own records.
- Decide, per item, whether you agree, partly agree, or disagree — you can mix.
- Gather the documents that back up your position (for a stock sale, that's your brokerage statement showing cost basis).
- Complete the response form the notice includes, attach a clear written explanation, and sign it.
- Send it back the way the notice specifies, by the deadline, and keep a copy of everything.
A $12,000 stock sale that wasn't $12,000 of income
- 1.A broker reports a $12,000 stock sale to the IRS. Nothing about cost basis is reported alongside it.
- 2.The CP2000 proposes extra tax as if the full $12,000 were profit.
- 3.In reality the shares cost about $11,500 — so only the gain above that is taxable, not the whole amount.
- 4.Responding with the brokerage statement that shows the $11,500 cost basis is what brings the proposed amount back toward reality.