Decoding IRS Letters: What Letter 566 and CP2000 Mean for You

Receiving a letter from the Internal Revenue Service is a universal source of stress. However, in 2026, not every envelope contains a "Notice of Audit." Often, the IRS is simply using its new AI audit selection tools to ask for a quick clarification.

If you’ve received a letter, the first thing to check is the notice number in the top right corner. Here is a breakdown of the two most common letters hitting mailboxes this year, along with the IRS notice help strategies you need to resolve them.

1. Notice CP2000: The "Underreporter" Inquiry

What it is: A CP2000 is not a formal audit. It is an automated notice generated by the Automated Underreporter (AUR) system. It means the IRS’s computers found a mismatch between what you reported and what a third party (like your employer or bank) reported.

The 2026 Crypto Trigger: This year, the most common reason for a CP2000 is the new Form 1099-DA. If a digital asset broker reported a sale of Bitcoin or Ethereum but you didn't include it on your return, the AI will flag the discrepancy instantly.

• Key Action: Do not file an amended return (Form 1040-X) immediately. Instead, respond directly to the CP2000 using the provided response form.
• Deadline: Usually 30 days. Ignoring this can lead to a formal "Notice of Deficiency."

2. Letter 566: The Correspondence Audit

What it is: This is a formal audit conducted entirely by mail. The IRS is essentially saying, "We see your deduction, but we need to see the receipts."

Common Targets:

• Large Charitable Donations: If your donations are significantly higher than the average for your income bracket.
• Business Expenses: Specific line items on your Schedule C that look suspicious to the DIF algorithm.
• Hobby vs. Business: If you've reported losses for several years.
• Key Action: Gather copies of your receipts, canceled checks, or logs. Never send your only original copy to the IRS.
• Strategy: If the documentation is complex, this is the stage where tax audit representation becomes invaluable to ensure you don't accidentally "over-share" information that could expand the audit.

Strategic Keywords for Your Defense

When responding to these notices, keep these IRS audit defense 2026 principles in mind:

• Accuracy-Related Penalties: The IRS often automatically adds a 20% penalty to these notices. An experienced tax audit attorney can often get these abated (removed) if the error was a "good faith" mistake.
• Attorney-Client Privilege: If the mismatch involves large sums of money or potential "badges of fraud," do not discuss it with your bookkeeper. Only a lawyer provides the confidentiality needed to protect you.

Summary Table: Which Letter Did You Get?

Is your CP2000 notice incorrect? Don't let the IRS's automated systems bully you into paying taxes you don't owe. Contact us for a Notice Review and let our experts handle the bureaucracy for you.