MAY 30, 2024

IRS Notice CP3219A: What It Is and How to Respond

IRS Notice CP3219A is the 90-day letter issued by the IRS Automated Underreporter (AUR) Program to a taxpayer after it has sent a 30-day letter (typically in the form of Notice CP2000) that the taxpayer did not respond to or that the taxpayer did respond to but IRS AUR did not process the response promptly.

As a 90-day letter, IRS Notice CP3219A is a statutory notice of deficiency that, if not responded to within 90 days of the date on the letter itself, will result in the IRS assessing the taxes, penalties, and interest described in the letter.

The CP3219A is typically accompanied by the IRS Form 5564, Notice of Deficiency Waiver, that a taxpayer can sign if they agree with the IRS’s proposed assessment — this form should generally not be signed and submitted to the IRS without first consulting with a tax professional about the implications of doing so.

Here is a redacted IRS Notice CP3219A that the IRS sent one of our clients pertaining to cryptocurrency transactions they didn’t report on their tax return.

What Is Assessment?

The assessment of a tax is the formal recording of a taxpayer’s tax debt — including penalties and interest — in the government’s books, that is, its financial records.

Why does this matter to you?  The main reason is because according to Internal Revenue Code § 6502 “Collection After Assessment”, the IRS must assess a tax before attempting to collect it from you — such as through wage garnishments or bank levies.

That is why the IRS actually assessing a tax is such a big deal because once a tax is assessed against you, the IRS has pretty awesome authority to collect it from you.

But assessment — the actual recording of your debt in the government’s books — must happen first.

IRS Notice CP3219A At a Glance

Letter Type:90-Day Letter
Generated By:IRS AUR Program
Preceded By:Notice CP2000
Followed By:Assessment
Recommended Action:Submit Response With Documentation to AUR

IRS Notice CP3219A Explained, Part by Part

Here is a full explanation of the Notice CP3219A, part by part.

Part 1: Summary of Deficiency

IRS Notice CP3219A_Summary of Deficiency

At the very top of the first page of Notice CP3219A, you’ll see a summary of the IRS’s proposed deficiency determination against you.

In this part of the notice, the IRS breaks down for you the total amount they believe you owe.  This breakdown could include items such as:

  • Your increase in tax (deficiency) based on the information the IRS received from third parties (such as W-2s, 1099s, K-1s, etc.) that it believes you didn’t accurately report on your originally filed tax return
  • The substantial tax understatement penalty that the IRS assesses if the IRS determines the understatement of tax on a return to be “substantial”

To the left of the summary box is some more information about the notice itself as well as your right to challenge the IRS’s determination in Tax Court and the deadline to file your Tax Court Petition — which is 90 days from the date of the notice.

There is also a reminder that you can simply agree with the IRS’s proposed changes and what to do if you do.

Part 2: Right to Petition the Tax Court

IRS Notice CP3219A_Right to Petition the Tax Court 1
IRS Notice CP3219A_Right to Petition the Tax Court 2
IRS Notice CP3219A_Right to Petition the Tax Court 3

Next, the Notice CP3219A informs you in more detail of your right to petition the United States Tax Court to challenge the deficiency before having to make any payment to the IRS.

If you chose to contest the IRS’s deficiency determination in Tax Court — which is not required (you can simply continue to make your case with the IRS Automated Underreporter Program) — you must file a petition with the Tax Court within 90 days of the date in the upper-right-hand corner of your Notice CP3219A.  This deadline is extended to 150 days if your Notice CP3219A is addressed to a person outside the United States.

Part 3: Other Actions You May Take

IRS Notice CP3219A_Other Actions You May Take 1

IRS Notice CP3219A_Other Actions You May Take 2

In the next section of the  Notice CP3219A, the IRS gives you a course of action you can take instead of or in addition to filing a Tax Court petition.

Essentially, you can either mail or fax additional information that show why the IRS’s proposed assessment is wrong — with an explanation of why.

Part 4: What to Do If You Agree With the IRS

IRS Notice CP3219A_What to Do If You Agree With the IRS

On the contrary, if you agree with the IRS, you can sign the Form 5564, Notice of Deficiency Waiver, sent along with the Notice CP3219A, and send it to the address indicated in this section of the Notice CP3219A.

If you have the means to pay off what you owe, you can enclose a check or money order along with the Form 5564, or you can simply send in the signed Form 5564, wait until the IRS sends you a bill, and then explore your tax resolution options on your balance.

Part 5: What Happens If You Don’t Respond

IRS Notice CP3219A_What Happens if You Don't Respond

In summary, this section states that the IRS will assess the tax liability plus penalties and interest shown in the summary of deficiency on the first page unless you contest the deficiency within 90 days by either submitting additional information to the IRS and/or filing a petition in Tax Court.

Part 6: Additional Information

IRS Notice CP3219A_Additional Information 1

IRS Notice CP3219A_Additional Information 2
IRS Notice CP3219A_Additional Information 3

In this section, the IRS provides you with some additional information using standard language.

This additional information pertains to:

  • How to visit the IRS’s official webpage for the the Notice CP3219A,
  • Where to obtain IRS tax forms
  • How to fax information to the IRS as well as things to consider when faxing sensitive information
  • Keeping your Notice CP3219A for your records
  • Authorizing someone to represent you before the IRS as your power of attorney using Form 2848
  • The best phone number at the IRS to call for information about your Notice CP3219A
  • The fact that the IRS sends a Notice CP3219A to both spouses on a joint return
  • Where to mail a paper Tax Court petition
  • Low-Income Taxpayer Clinics
  • The Taxpayer Advocate Service (TAS)

Part 7: Changes to Your Tax Return

IRS Notice CP3219A_Changes to Your Tax Return

In this section of the CP3219A Notice, the IRS gives you a side-by-side breakdown of various amounts from the tax return you filed (these numbers are in the first column, labeled, “Shown on return”) alongside the amounts that the IRS, based on its proposed assessment, believes these items should have been in the second column, labeled “As corrected by IRS”.

The third column “Difference” shows the difference between the first two columns.

In general, the difference in the “Tax you owe” amount will be the same as the “Increase in tax (deficiency)” amount indicated on the first page of the CP3219A Notice.

Part 8: Explanation of Changes to Your Tax Return

IRS Notice CP3219A_Explanation of Changes to Your Tax Return

In this section, the IRS specifically provides you with the information on the information returns (such as 1099s, W-2s, K-1s, etc.) that the IRS used in calculating its proposed assessment amount.

In the example above, the IRS is listing out various stock and cryptocurrency transactions from Apex Clearing and Robinhood Crypto LLC, respectively, that it believes our client did not report on his tax return.

Note that this section could be several pages based on how many items of income the IRS believes you did not report.

Here’s a brief description of each column:

  • First column (“Received from”): This is the party that issued the information return with your Social Security number on it to the IRS.
  • Second column (“Address”): This is the address of the party named in the first column.
  • Third column (“Account information”): This is a description of the income or transaction that was reported by the party in the first column to the IRS on the information return. This section also lists your Social Security number as well as the specific information return (in the cases above, Form 1099-B) that the party in the first column issued to the IRS.
  • Fourth column (“Shown on return”): This is the amount of income attributable to the item that the IRS believes you actually reported on your tax return.
  • Fifth column (“Reported by others”): This is the amount of income attributable to the item that the IRS believes you should have reported on your tax return.
  • Sixth column (“Difference”): This is the difference between the amount of income attributable to the item that the IRS believes you should have reported on your tax return and the amount of income attributable to the item that the IRS believes you actually reported on your tax return. This is the additional income on which the IRS is calculating its proposed deficiency amount.

Part 9: Documentation Upload Tool

IRS Notice CP3219A_Documentation Upload Tool

In this section, the IRS is informing you that you can upload your supporting documents using its Documentation Upload Tool.

Part 10: Cost Basis of Stock Sold

IRS Notice CP3219A_Cost Basis of Stock Sold

Part 11: Misidentified Income

IRS Notice CP3219A_Misidentified Income

Part 12: Form W-2 or 1099 Not Received

IRS Notice CP3219A_Form W-2 or 1099 Not Received

Part 13: Refigured Tax Based on Schedule D Computation

IRS Notice CP3219A_Refigured Tax Based on Schedule D Computation

Part 14: Power of Attorney

IRS Notice CP3219A_Power of Attorney

Part 15: Substantial Tax Understatement Penalty

IRS Notice CP3219A_Substantial Tax Understatement Penalty 1

IRS Notice CP3219A_Substantial Tax Understatement Penalty 2

Part 16: Interest Charges

IRS Notice CP3219A_Interest Charges

In the next section, the IRS shares with you how they calculated your interest charges.

When the IRS Sends Notice CP3219A

The most common reason for the IRS sending you a Notice CP3219A is when the following things happened:

  1. You filed a tax return for the tax year mentioned on the notice and the IRS believes that you did not report all your income based on information it received from third parties on information returns such as Form 1099, Form W-2, Schedule K-1, and more.
  2. The IRS Automated Underreporter (AUR) Program sent you a Notice CP2000 that you did not respond to (or that you did send a response to but AUR failed to process).

What You Should Do If You Receive a Notice CP3219A

Below are the steps you should take after you receive a Notice CP3219A.

1. Make sure you actually earned the income that the IRS is claiming you did not report.

Go through the “Explanation of Changes to Your Tax Return” section and review, line by line, every item of income in this section and ask yourself, “Did I actually earn this income?”

For example, if under “Explanation of changes to your Form 1040,” you see that the IRS has record of receiving two Forms 1099-NEC issued to your Social Security number totaling $23,680 between the two of them from a company called Complete Pest Elimination Inc., but you never received any money from Complete Pest Elimination Inc. during the year or you received less than $23,680 from Complete Pest Elimination, Inc. during the year, you need to take that up with both the issuer of this 1099 and also with the IRS.

IRS Notice CP2000_Nonemployee Compensation of $23,680 on Two Forms 1099-NEC

So starting here, you’re going to be making a list of things that:

  1. you need to take up with the IRS in the letter you’re going to write them in response to the Notice CP3219A and
  2. you need to take up with other parties, primarily entities that issued you erroneous tax documents.

Obviously if you didn’t actually earn the income reported on the 1099-NEC or at least not all the income that was reported on the 1099-NEC, then the tax form the IRS is looking at and based on which it is proposing to assess an additional liability against you is erroneous and the IRS is overcalculating your tax liability. And no one’s going to fix it other than you (or your representative).

So this is the first step — review the income the IRS is saying you didn’t report, compare it to your own records, and if there are discrepancies, keep a running list of things you need to do to fix this.

2. For income you did earn but didn’t report on your return, check for deductions.

So let’s say you were an Uber driver and you made $50,000 gross during the year driving for Uber but you forgot to include your Uber income on your tax return.

So nine to 15 months after you file your return, the IRS sends you a Notice CP3219A indicating that Uber issued you a 1099 showing $50,000 and the IRS is proposing an assessment of taxes, penalties, and interest on you assuming that you should have reported an additional $50,000 of income on your tax return.

And in this instance, the IRS is correct that you didn’t report that $50,000 of Uber income as gross receipts on your Schedule C. However, you have business deductions you can take against that $50,000; so you shouldn’t be taxed on the full $50,000 — which is what the IRS is proposing in the Notice CP3219A — you should only be taxed on your net business income from your Uber driving.

And obviously from that $50,000 gross, you can deduct things like Uber’s cut as well as the vehicle expenses you incurred while earning income driving for Uber using either the standard mileage method or the actual expenses method (not going to get into that here). And those expenses might be $30,000 — I’m just making up a figure, by the way — so your net business income would only be $20,000.

So even though the IRS is right you didn’t report that $50,000 as gross receipts on Schedule C like you should’ve, the IRS doesn’t know your expenses, and they’re not going to estimate expenses for you; it’s on you to inform the IRS about these expenses. If you would have reported the $50,000 of gross Uber income on your Schedule C, you would have reported these expenses to the IRS on all the expense lines on Schedule C, but because you didn’t, you’ll have to inform the IRS of them in your response to the Notice CP3219A.

On this point, may even want to prepare a dummy Schedule C to attach to your response saying, “Hey, IRS, this is what my Schedule C should have looked like had I filed it correctly.”

3. Calculate how much taxes you actually owe.

So now that you’ve gone through the previous steps, I would actually recommend that you prepare a tax return showing what your tax liability should actually be if you include all the income you didn’t report correctly on your actual tax return, including deductions.

If you still have access to your tax software, you can try to do it that way or if you’ve hired a professionals like us at Choice Tax Relief to respond to the Notice CP3219A on your behalf, we will do that for you.

Because at the end of the day, you want to know what you actually owe; don’t trust the IRS to calculate your liability for you.

Now, if you really want to get fancy, you would probably want to calculate the penalties and interest as well to check the IRS’s math on that — and that’s something we would do for you at Choice Tax Relief — but that may be a bit complicated if you don’t have the tools to do that.

4. Determine if you’re still subject to the substantial understatement penalty.

That said, there is one penalty that you should probably do the math on, and that’s the accuracy-related penalty for substantial understatement of tax.

The IRS assesses this penalty if you understate your tax liability on your tax return and this understatement is more than the larger of these two figures:

  1. 10% of your correct tax liability
  2. $5,000

So let’s go back to the Uber example. IRS says that you didn’t report $50,000 of self-employment income, and it calculated what it believes your tax to be on $50,000 of self-employment income in the proposed assessment.

The actual math is more complicated than this, but assuming your marginal regular income tax rate on all this income is 24%, the IRS would say you owe an additional $12,000 in regular income tax on this income.

And you’d also be subject to self-employment tax at a rate of 15.3% on this income assuming that you haven’t maxed out your Social Security income limit through other income you earned.

(And yes, tax nerds, I know there’s a a 92.35% multiplier in here as well, but let’s just keep things simple for the sake of example.)

So that means that the IRS would also propose an assessment of $7,650 of self-employment tax on this $50,000 as well, but let’s round up to $8,000 just for sake of example.

So combining the $12,000 in regular income tax and $8,000 of self-employment tax, then in the IRS’s mind, the amount of your understatement of tax liability on your tax return is $20,000.

Now what you have to do is add this figure to the amount of tax liability you actually reported on your return — let’s say that was $10,000. So your “correct” tax liability in the IRS’s mind is $30,000.

So in the IRS’s mind because your $20,000 understatement exceeds $5,000 (which is the greater of $5,000 or 10% of your correct tax liability of $30,000, so the greater of $5,000 or $3,000), it believes that you are subject to the substantial understatement penalty.

And the penalty itself is 20% of the understatement, so in this case 20% of $20,000, which is $4,000.

5. Send your response to the IRS, along with supporting documentation.

At this point, you have an idea of what your game plan is and what you think the additional assessment of tax should be.

So now, you have to explain all this to the IRS because they’re not going to change their mind if you don’t change their mind; they’ve proposed an assessment and have communicated it to you on the Notice CP3219A; now you have to step up to the plate and convince them otherwise.

You do this by writing a letter to the IRS and faxing it to the number on the Notice CP3219A.

What if you agree with the IRS?

If you agree with the IRS’s proposed assessment in the Notice CP3219A — meaning that 1) you agree that you did not report the income the IRS indicated in the “Explanation of Changes to Your Tax Return” section of the Notice CP3219A, 2) you have no deductions or other tax benefits to claim about this income, and 3) you agree with the IRS’s calculation of the tax on this income along with penalties and interest, simply check the box next to “I agree with all changes” and send that back to the IRS.

What If You Still Owe the IRS?

Of course, if you still owe the IRS a balance due after responding to your Notice CP3219A, and even after the IRS AUR Program accepts your changes, you’ll need to figure out how you’re going to resolve this balance.

Now, you could simply pay whatever balance is owed in full along with penalties and interest.

But it’s generally at least worth seeing if you’ll qualify for any penalty abatement and if you really can’t pay what you owe at the moment see if you could qualify for some kind of tax relief option, such as an offer in compromise, some kind of installment agreement, being placed in currently not collectible status, or several others.

To learn more about these options, read this article about how to get IRS tax debt relief or watch the video below.

Should You File a Tax Court Petition?

Before I conclude this article, I do want to answer the question, “Should I file a Tax Court petition in response to receiving a Notice CP3219A?”

Now, most cases with AUR issues — even after the Notice CP3219A has been issued — can be resolved simply by submitting a response to the IRS Automated Underreporter (AUR) Program.

That said, there may be — depending on your particular case — a reason to file a Tax Court petition before that hard 90-day deadline mentioned in the notice.

For example, if you would still have a large tax balance due with penalties and interest even if IRS AUR accepts your response without issue, filing a Tax Court petition may increase your odds of penalty abatement.

This is because when you petition the Tax Court, you don’t go straight to Tax Court; they kick your case to Appeals first.

And Appeals tends to be a bit more generous with penalty abatement than the IRS collections department.

And speaking of Appeals, another thing to keep in mind here — and this is probably getting a little too deep down the procedural rabbit hole here — but if you don’t file a Tax Court petition to contest the deficiency, you won’t be able to dispute the tax liability before IRS Appeals in the future because you had a previous opportunity for Appeals consideration, i.e., via filing the Tax Court petition.

This may come into play if you’re taking a very aggressive position to dispute the IRS’s proposed assessment or some position that the IRS could potentially challenge on the basis of tax law.

Also, another thing to keep in mind is that filing a Tax Court petition will typically buy you some more time before the IRS comes to collect.  However, you should not file a Tax Court petitions simply as a means of delaying collection.