The Automated Under Reporter (AUR) System of IRS may issue a CP 2000 notice proposing changes to your income tax return, based on a comparison of the income, payments, credits, and deductions you reported on your tax return with information reported by third parties, typically on Form 1099. An amended return 1040X may be necessary to correct other errors on the return not covered by the CP2000 Letter generated by AUR.
Tax Tip – Because the IRS has information exchange agreements with state taxing authorities, you should evaluate filing an amended state return if the federal tax change affects state tax liability.
It’s important that you respond to the Automated Under Reporter CP 2000 notice by the due date or IRS will assume the proposed changes are correct and continue processing the proposal to an assessment and enforce collection. Most AUR discrepancy notices are usually issued within 18 months of the filing date of the return, and include interest and penalties of 20% under Section 6662.
Tax Tip – The IRS Section 6662 Accuracy Related Penalty for CP 2000 will not apply if the corrected tax is less than 10% of the original amount and under $5,000.