How to Navigate the IRS’s Automated Underreporter Program

Recent estimates by the Internal Revenue Service (IRS) indicate that nearly $1 trillion in legally owed taxes go uncollected each year, making addressing this gap a major focus for both the IRS and Biden administration. In fact, it has been proposed by the current administration to increase the IRS’s budget by $80 billion over the next 10 years, which would allow for the enforcement staff at the organization to double in size.

To address this issue, there has been an increase in IRS activity involving the Automated Underreporter (AUR) Program, or more commonly known as the return matching program. Each year through this initiative, the IRS matches information returns, such as Forms W-2, 1099 and K-1, with the related Form 1040. When the IRS believes that income shown on these documents has not been properly reported on the tax return, it will issue a Notice CP 2000, which highlights the unreported item(s) per the IRS and the proposed tax effect of this underreporting.

Responding to Notice CP 2000 and Notice 3219A

If a taxpayer receives Notice CP 2000, it is crucial for them to respond prior to the notice deadline and explain whether the “call out” has been reported or is otherwise nontaxable. If the IRS fails to receive a Notice CP 2000 response or if the response provided is inadequate, it will then issue Notice 3219A. Also known as a Notice of Deficiency or a 90-Day Letter, Notice 3219A is the IRS’s procedural method of moving the case to the point where it can assess the proposed tax change.

Although Notice 3219A provides a 90-day period to file a petition with the Tax Court to litigate the issue, taking this expensive route to dispute the matter is usually not necessary, as the AUR has a formal program to reconsider these cases. Filing a successful request for reconsideration will result in the IRS not assessing the proposed tax shown on Notice 3219A or abating any previously assessed tax in the case. Thus, in most cases, the best method to respond to a Notice 3219A is typically to not file a petition with the Tax Court, but to file a reconsideration request using the same response format when responding to a Notice CP 2000.

We’re Here to Help

Bennett Thrasher’s Tax Controversy practice helps clients navigate IRS matters, including responding to Notices CP 2000 and 3219A. To learn more about our services, please contact James Pickett by calling 770.396.2200.