IRS AUR: How the Automated Underreporter Assesses Additional Taxes, Penalties, and Interest

IRS AUR: How the Automated Underreporter Assesses Additional Taxes, Penalties, and Interest

What Is the IRS Automated Underreporter System?

When the IRS receives tax-related information from businesses, banks, employers, and other third parties, it uses the Automated Underreporter System (AUR) to compare the information these third parties provide to an individual’s tax return.

AUR detects discrepancies for income, deductions, and credits. If a taxpayer owes money to the IRS or is eligible for a refund after AUR corrects errors, the IRS will send a Notice CP2000.

One example of why a taxpayer receives a CP2000 after an AUR review is underreporting income. Employers must send copies of all employee W-2s, 1099s, or 1098s to the IRS so they know how much income an employee earned for a given tax year.

If an employee reports making $80,000 on a federal tax return, but the W-2 the employer filed with the IRS shows that they earned $90,000, AUR will detect this discrepancy, adjust the return, and re-calculate taxes owed.

Does the AUR System Review Every Federal Tax Return?

The IRS reviews all 1040 tax returns filed online or by mail. However, not all returns are reviewed by the AUR system. The IRS states that “potential Automated Underreporter System cases are identified by computer matching of federal tax returns with corresponding information (W-2s, for example) returns in our Information Returns Master File.”

Each AUR case is selected by an automated process that maximizes overall tax compliance coverage. When a tax return is selected for AUR review, it is also analyzed by IRS tax examiners who identify and resolve return issues. These same tax examiners are also responsible for flagging returns for tax fraud audits.

What Types of Discrepancies Will AUR Catch on Tax Returns?

AUR will flag differences between income amounts reported by third parties and income amounts reported by tax filers. The AUR system will also identify other discrepancies such as a wrong tax ID number or the misspelling an individual’s name.

How Does the IRS AUR Department Notify Taxpayers When It Finds Errors and Omissions?

The IRS will mail a CP2000 to taxpayers who have been flagged by the AUR system.

Information provided on a CP2000 notice includes:

  • Income reported by taxpayer on an original or amended return.
  • Income earned by taxpayer as reported by third parties.
  • Changes proposed by the IRS for income amounts, credits, deductions, taxes owed, or payments made.
  • Response form for the taxpayer to accept or reject proposed changes.

The response form also allows the taxpayer to accept or reject some, but not all, of the proposed changes.

An AUR notice is not an IRS bill. You’ll receive a separate balance due notice if you owe.

Will You Owe Back Taxes If the IRS Sends You an AUR CP2000 Notice?

Not necessarily. In some cases, a CP2000 notice may show that changes after an AUR review resulted in a refund or an increase in the refund amount. In other cases, errors detected by the AUR system could mean a taxpayer owes taxes or owes more taxes than they initially paid when they filed the original federal tax return.

Sometimes a CP2000 notice simply informs a taxpayer when the tax ID they provided does not match the ID found on third-party documents sent to the IRS. In this situation, there would not necessarily be changes to income, taxes, or refunds.

What Should You Do If You Receive an AUR Notice?

Taxpayers have 30 days to accept or reject the information in an AUR notice. The 30-day period begins from the date printed on the CP2000, not the date you receive the notice.

Agreeing with an AUR CP2000 notice involves nothing more than sending the notice back to the IRS indicating you accept the proposed changes. If you disagree with AUR changes, however, you will need documentation to support your dispute of the proposed changes to your tax return.

Finally, if you think a third party submitted incorrect income information to the IRS, you can contact the third party and attempt to resolve the error with them.

Need more help? You can start online by answering 6 simple questions. We never charge for ‘investigations’ or consultations. You can also call us at 866-568-4593.

6 Simple Questions. Free Evaluation.


Join our Newsletter

Enter your email address to join our free newsletter. Get all the latest news and updates.