The Automated Underreporter (AUR) Program: When Computer Matching Catches Discrepancies

Every year, the IRS receives billions of data points about taxpayers—not just from tax returns, but from employers, banks, brokerages, payment platforms, and business partners. When those numbers don’t line up, the IRS doesn’t start with a human audit. It starts with a computer.

That system is called the Automated Underreporter (AUR) Program, and it is one of the most common reasons taxpayers receive unexpected IRS notices—especially the well-known CP2000.

This guide explains how AUR works, what triggers it, what a CP2000 actually means, and how to resolve issues correctly without making things worse.

What Is the IRS Automated Underreporter (AUR) Program?

The AUR Program is an IRS compliance system that compares what you reported on your tax return against third-party information returns the IRS received independently.

These third-party documents include:

• Forms W-2 (wages)
• Forms 1099 (interest, dividends, freelance income, crypto, brokerage activity, payment apps)
• Forms K-1 (partnerships, S corporations, estates, trusts)
• Other information returns reported under your SSN or EIN

If the IRS’s matching system detects a difference, your account is flagged for potential underreporting.

Important distinction:

• AUR is not an audit
• AUR is post-filing compliance matching
• It is computer-driven, not discretionary

How the AUR Matching Process Works

The AUR process follows a predictable sequence:

1. Data Collection

Third parties submit information returns to the IRS—often weeks or months after you file your return.

2. Automated Matching

The AUR system matches those information returns against:

• Income reported on your Form 1040
• Schedules (Schedule B, C, D, E, etc.)
• Credits, deductions, and exclusions tied to reported income

3. Discrepancy Detection

If income appears missing, understated, or categorized differently, the system calculates a proposed adjustment.

4. Human Review (Limited)

Before a notice is issued, an IRS employee typically performs a brief validation to confirm the discrepancy is actionable.

5. CP2000 Issued

If the discrepancy remains, the IRS sends a CP2000 notice proposing additional tax.

What Triggers an AUR Case?

Common AUR triggers include:

• Missing freelance or gig income reported on a 1099-NEC
• Brokerage sales reported on 1099-B without matching Schedule D entries
• Crypto transactions reported to the IRS but not disclosed on the return
• W-2 wages reported under the wrong SSN or omitted entirely
• K-1 income reported late by a partnership or S corporation
• Interest or dividends reported under a joint SSN but omitted from the return
• Payment platform income (e.g., PayPal, Venmo, Stripe) reported as gross receipts

AUR does not understand context. It matches numbers—not explanations.

Understanding the CP2000 Notice

A CP2000 is the most common AUR notice taxpayers receive. Despite how it feels, it is not a bill and not a final determination.

A CP2000 includes:

• The income items the IRS believes were underreported
• A comparison of IRS data vs. your return
• A proposed tax increase
• Proposed penalties and interest (often shown but not final)
• A response deadline (typically 30 days)

Key point:
A CP2000 is a proposal, not an assessment.

Why the IRS’s Numbers Are Often Incomplete

The AUR system typically looks at gross amounts, not net results.

Examples:

• A 1099-B may show gross proceeds, but not your cost basis
• A 1099-NEC shows gross income, but not expenses
• A K-1 may reflect income already offset by losses elsewhere

This is why blindly agreeing to a CP2000 can result in overpaying tax.

How the AUR Resolution Process Works

Once you receive a CP2000, you generally have three options:

Option 1: Agree With the Notice

If the IRS’s proposal is correct:

• Sign the response form
• Pay the amount due (or set up payment arrangements)

This converts the proposal into an assessed balance.

Option 2: Partially Agree

If some items are correct and others are not:

• Indicate partial agreement
• Provide documentation for disputed items
• Submit a corrected explanation or schedules

This is common with brokerage, crypto, and self-employment income cases.

Option 3: Disagree With the Notice

If the IRS is wrong:

• Respond in writing
• Include supporting documents (amended schedules, basis statements, expense summaries)
• Do not file an amended return unless specifically instructed

The AUR unit will review your response and either:

• Accept your explanation
• Request more information
• Issue a revised notice
• Close the case

What Happens If You Ignore a CP2000?

Ignoring a CP2000 is one of the worst options.

If you do not respond:

• The IRS will assess the proposed tax
• Penalties and interest will become real
• Collection notices may follow
• Your appeal rights become more limited

AUR cases are easiest to resolve before assessment.

How AUR Activity Appears on Your Transcript

AUR-related actions often show up on an Account Transcript, including:

• Notice indicators (often TC 971)
• Additional tax assessments
• Penalty and interest transactions
• Subsequent adjustments if the case is resolved

This is why transcripts are critical when dealing with CP2000 notices.

The Automated Underreporter Program is not about suspicion—it’s about math. The IRS compares what you reported against what others reported about you. When those numbers don’t match, the system asks questions.

A CP2000 does not mean fraud. It does not mean audit. It means the IRS wants clarification before making a final decision.

Handled correctly, many AUR cases are resolved with reduced or zero additional tax. Handled poorly—or ignored—they can turn into long-term problems.