Your 1099 caused a payee's CP2000: what the IRS tells you to send

How it happens

The IRM says most of these calls come "from an employer or issuer that filed duplicate Forms 1099 or Forms W-2," and the rest from an issuer that "overstated the gross income" of a payee (IRM 21.3.11.6.1). A third cause the section does not name but the field sees constantly is the wrong TIN: a 1099 keyed to a different person's SSN, who then receives a CP2000 for income they never saw. The IRS cannot tell which it is from the notice. The payee cannot either. You can, from your filing records.

What the IRS tells its own staff

The Technical Services Operation script is two branches. "If there is only one payee/employee involved, advise the customer to file a corrected return. Copy A must be filed with the IRS or SSA, a copy must also be provided to the payee/employee along with a letter of explanation as to how the error was made. The payee/employee will then have to answer the notice and provide a copy of the corrected form and letter of explanation to the IRS." If the notice involves more than one payee, the assistor opens a case and escalates it to Information Filing Support, whose "computer assistants ... are trained to research the files to determine the error(s) and take corrective actions" (IRM 21.3.11.6.1).

Three things follow. The correction alone does not close the payee's notice; the payee must answer the CP2000 and attach your correction and your letter. The assistor will not fix the CP2000 for the payee, and is "not trained" on the C-Notice series the CP2000 is grouped with. And a single-payee problem never leaves the phone script; the IRS's own research staff get involved only when several payees are affected.

Correct the return: Type 1 or Type 2

File the correction the same way the original went in; IRIS and FIRE both accept corrections, and paper corrections go on official forms with a new Form 1096. Furnish the corrected statement to the payee (and, in a Type 2 case, to the person wrongly reported, whose corrected form shows zero). The corrections page has the box-by-box steps.

The letter of explanation: six required elements

The IRS's computer assistants, when they take over a multi-payee case, are told to call the filer and "advise to send letters of explanation of the problem to payees ... who have already received Notices CP2000." The IRM lists what the letter must include (IRM 3.42.9.14.1):

1. Filer's name and contact information
2. Recipient's name
3. TIN
4. Type of form
5. Correct money amount
6. Brief explanation of the problem
7. Copy of the original or corrected Form 1099

The same section tells the IRS what to say to a Form 1099 filer: "Furnish corrected statements to the recipient of the statements and provide a letter of explanation for the payee to include in a response to Notice CP2000." So the letter is written to be read by an AUR tax examiner, not by the payee. Keep it to one page, state the error in one sentence, state the correct figure, and say that a corrected return has been filed and when. The letter of explanation template follows the IRM list line by line.

The payee's clock, and yours

A CP2000 asks for a response by a date about 30 days from the notice. Your correction will not post to the payee's account in time, and the AUR unit does not wait for it. The payee should respond by the deadline, check the box disagreeing with the proposed change, and attach your letter and the corrected form (or, in a wrong-TIN case, the zero-amount correction). That is what the IRM script expects: "The payee/employee will then have to answer the notice and provide a copy of the corrected form and letter of explanation to the IRS."

Your part: file the correction now, not after the payee's case closes, and date the letter the day the correction is filed. If the payee already agreed to the CP2000 and paid, the correction still matters; the payee can file an amended return, and the letter is the support for it.

When it is many payees

Two IRS paths open once the error is systemic. On the phone, TSO escalates a multi-payee CP2000 problem to Information Filing Support, which documents the case on Form 14670, Underreporter Employer/Payer Transmittal, and sends it to the Ogden campus (IRM 3.42.9.14.1). By mail, the intake manual routes payer correspondence reporting "50 or more" recipient accounts in error to the AUR Payer Coordinator at Ogden (IRM 3.10.8.3). Either way the IRS can flag the bad returns on its side so that payees who have not yet been noticed are not, which no number of individual corrections achieves quickly.

Call TSO at 866-455-7438 with the count, the tax year, the form type and the cause. File the corrections in a batch. Send the letters of explanation to the payees who already have notices; the rest get corrected statements.

Your penalty exposure

An information return with a wrong amount, wrong TIN or wrong payee is an incorrect return under IRC 6721, and the payee statement that went with it is an incorrect statement under 6722. Corrections filed after August 1 sit in the full-rate tier. Two things limit it. A duplicate whose original was correct and timely is not penalized (IRM 4.19.25.8.1). And the de minimis safe harbor for errors of $100 or less ($25 or less of withholding) means such an error need not be corrected at all unless the payee elects otherwise, though a payee holding a CP2000 will elect. A wrong-TIN correction is also the record that you discovered and fixed the error, which is the second half of the reasonable-cause test examiners apply if the same TIN appears on a later 972CG.

Questions people ask