Tax Code 4T: CP2000 Notice, Response Steps, and Penalties

There is no IRS transaction code called “4T.” IRS transaction codes are three digits, and the master file list published in the Internal Revenue Manual contains no entry designated 4T.¹ If you’re looking at a transcript or notice and trying to decode something that reads like “4T,” you’re almost certainly seeing a three-digit code from the Automated Underreporter program or an additional tax assessment. The codes below are the ones that actually show up when the IRS thinks you left income off your return, along with what each one means and what to do next.

What You’re Probably Actually Seeing

Four transaction codes account for most of the entries people mistake for something else when unreported income is in play:

TC 922 is an Information Returns Program Underreporter status code. It posts to your tax module when IRS computers flag a mismatch between what you reported and what third parties reported.
TC 290 is an additional tax assessment. This is the code that formally adds tax to your account and increases your balance due.
TC 424 is an examination request indicator, generated when an underreporter case gets referred to the Examination division for a closer look.
TC 640 is an advance payment credit posted when you pay toward a CP2000 proposal or a statutory notice of deficiency.

All four are documented in the IRS master file codes reference.¹ A TC 922 alone means your return has been flagged but the process is still early. A TC 290 with a dollar amount means the IRS has already assessed additional tax against you.

Why the IRS Flagged Your Return

The Automated Underreporter program compares the income on your Form 1040 against every W-2, 1099-INT, 1099-DIV, 1099-NEC, and similar information return that employers, banks, and payers filed with the IRS in your name.² When the numbers don’t line up, a tax examiner reviews the return, checking the third-party data against the income, credits, and deductions you claimed.³

Typical triggers are a forgotten 1099 from an old bank account, freelance payments from a client that slipped your mind, or stock sale proceeds that weren’t picked up on Schedule D.

The CP2000 Notice Is the Piece That Matters

When a discrepancy survives the examiner’s review, the IRS sends a CP2000. It is not a bill. It is a proposal that says the IRS thinks you owe more tax, and lists each item it believes was underreported along with the additional tax, penalties, and interest it calculated.³

Nothing has been assessed yet at the CP2000 stage. That’s the point in the process where you have the most room to dispute, partially agree, or negotiate, and it is far cheaper to resolve things here than after an assessment posts.

How to Respond

You have 30 days from the date on the notice to respond, or 60 days if you live outside the United States.³ Do not miss this deadline. On-time responses keep everything in the proposal stage.

If You Agree

Sign the response form and send it back. You don’t need to file an amended return if you agree with the proposed changes and have nothing else to add. If the CP2000 is correct but you also have other income, credits, or deductions that weren’t on your original return, file Form 1040-X with “CP2000” written on top and submit it with the response form.⁴

If You Disagree

Check the appropriate box on the response form, include a signed statement explaining why, and attach supporting documentation. Bank statements, corrected W-2s or 1099s, and records showing the income was reported elsewhere on your return are the usual evidence. You can send everything through the IRS Document Upload Tool, by fax, or by mail.³

What Happens If You Ignore It

If the IRS doesn’t hear from you by the response date, it sends a Statutory Notice of Deficiency, sometimes called a 90-day letter.³ That letter is the formal notice that triggers your right to petition the U.S. Tax Court. You have 90 days from the mailing date to file, or 150 days if the notice is addressed to you outside the country.⁵ The IRS cannot legally assess the additional tax or start collection until that window closes or the Tax Court rules.

Miss the 90 days and the IRS assesses the full proposed amount. From there, your only options are to pay the tax and sue for a refund in federal district court or the Court of Federal Claims. Both are dramatically more expensive and slower than a Tax Court petition, which doesn’t require you to pay first. The Statutory Notice of Deficiency is your last affordable off-ramp.

Penalties and Interest

Three charges typically pile onto an underreporter case.

The failure-to-pay penalty under Section 6651 runs at 0.5% of the unpaid tax per month, capped at 25%.⁶ The clock runs from the original due date of the return, not from the date the CP2000 was issued, so penalties can already be sizable by the time the notice reaches you.

The accuracy-related penalty adds 20% of the additional tax when the understatement is large enough. For individuals, a substantial understatement means an understatement exceeding the greater of 10% of the tax that should have been on the return or $5,000.⁷ You can avoid it by showing reasonable cause and good faith in a written explanation to the IRS.

Interest accrues from the original due date of the return. The IRS sets the rate quarterly at the federal short-term rate plus three percentage points. For 2026, the individual underpayment rate started at 7% in the first quarter and dropped to 6% in the second quarter.⁸ Interest can be waived only in narrow situations involving IRS errors.

Payment Options Once Tax Is Assessed

If you owe additional tax after the assessment posts, you have several ways to pay, and applying sooner reduces the penalties that keep running.

Pay in full and stop all penalty and interest accrual immediately.⁴
Short-term payment plan of 180 days or fewer, with no setup fee. Interest and penalties continue until paid.
Long-term installment agreement with direct debit: setup fee of $22 online, or $107 by phone or mail. Low-income taxpayers pay no setup fee.⁹
Standard long-term installment agreement: setup fee of $69 online, or $178 by phone or mail. Low-income taxpayers pay a reduced fee of $43.⁹
Offer in compromise, if you can’t pay the full amount and an installment plan won’t work. The IRS looks at your income, expenses, assets, and ability to pay before accepting.⁴

Applying online at IRS.gov is the cheapest route and usually gets approved faster than paper. Interest keeps running under any payment plan, so the longer you take, the more you pay.

Where to Get Help

Low Income Taxpayer Clinics provide free or low-cost representation to taxpayers whose income falls within 250% of the federal poverty guidelines. For a single individual in 2026, that ceiling is $39,900 in the contiguous states; for a family of four, $82,500.¹⁰ You also need $50,000 or less in dispute with the IRS. These clinics can help you respond to a CP2000, negotiate with the IRS, or represent you before the Tax Court.

Above those income limits, an enrolled agent or CPA experienced with IRS notice work is worth the cost when the proposed additional tax is significant. Bring them in early. Once the assessment is finalized and collection starts, the leverage shifts hard toward the IRS.

1
Internal Revenue Service. Section 8A – Master File Codes
2
Internal Revenue Service. Internal Revenue Manual 4.19.2 – IMF Automated Underreporter (AUR) Control
3
Internal Revenue Service. Topic No. 652, Notice of Underreported Income – CP2000
4
Internal Revenue Service. Understanding Your CP2000 Series Notice
5
Office of the Law Revision Counsel. 26 USC 6213 – Restrictions Applicable to Deficiencies; Petition to Tax Court
6
Office of the Law Revision Counsel. 26 US Code 6651 – Failure to File Tax Return or to Pay Tax
7
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
8
Internal Revenue Service. Quarterly Interest Rates
9
Internal Revenue Service. Payment Plans; Installment Agreements
10
Taxpayer Advocate Service. Low Income Taxpayer Clinics