Many Long Island taxpayers are surprised when an unexpected IRS notice arrives accusing them of underreporting income. It can happen in Uniondale, Hempstead, Garden City, the Five Towns, Hicksville, Queens-adjacent neighborhoods, and everywhere in between. The notice might be a CP2000, a Proposed Assessment, or something labeled “Income Discrepancy.” No matter the version, the message is unsettling:
“We think you made more than you reported.”
Most people who receive these notices didn’t do anything intentionally wrong. They filed their tax return, reported what they believed was correct, and trusted the forms they received. But income patterns in Long Island and the New York metro area are complex. Multiple jobs, union card work, overtime, freelancing, tips, side businesses, and high-cost-of-living financial movements create situations the IRS’s automated systems misinterpret.
Fine & Clear Tax Solutions helps Long Island taxpayers resolve these notices every day. Understanding why the IRS thinks you underreported income — and how to respond — can prevent the situation from spiraling into penalties, audits, or enforcement actions.
What “Underreported Income” Actually Means
The IRS is not accusing you of fraud. Underreporting means the numbers on your tax return don’t match the income forms the IRS has on file.
Employers, contractors, banks, payment platforms, brokers, unions, pension providers, and payroll companies send copies of income documents directly to the IRS. If even one of these forms contains different amounts from what you reported, the IRS’s automated matching system flags the return.
The most common situations involve:
- A missing W-2 from a job you left early in the year
- A forgotten 1099 from a side gig
- A 1099-K issued for personal transactions
- Stock sales or RSU income misreported by payroll
- Missing interest statements
- A corrected tax document you never received
The IRS assumes the forms in its system are correct — even when they aren’t.
Why Long Island & NYC Taxpayers Are Flagged More Often
The IRS system struggles with the unique income patterns of the New York metro area. Long Island residents often have multiple jobs, complex payroll situations, or financial activity that looks “irregular” to the IRS’s automated systems.
Multiple jobs and overlapping W-2s
It’s normal for people in Nassau County and nearby areas to switch employers mid-year, work seasonal or holiday retail jobs, or take on part-time income to manage high living costs. One missing W-2 leads to an instant mismatch.
Overtime, shift differentials, and union work
Union workers, healthcare staff, law enforcement, transit employees, and construction trades often receive pay that varies widely throughout the year. These factors complicate the IRS’s calculations.
Side gigs and supplemental income
Many Long Islanders earn supplemental income through:
- Uber or Lyft
- Catering or event work
- DJing
- Hair, beauty, or barber services
- Home repair or contracting
- Weekend photography or videography
- Delivery apps
Each platform may issue a separate 1099.
Film, entertainment, and production work
NYC and Long Island host a high volume of production work. A single taxpayer may receive multiple short-term W-2s and 1099s.
High involvement in financial markets
Many residents have brokerage accounts, RSUs, ESPPs, or side investments. Stock sales reported incorrectly — or without basis — trigger mismatches.
Cash-heavy industries
Hospitality, salons, transportation, and certain trades involve cash or tip income. Low reported tips compared to industry norms prompt IRS scrutiny.
1099-K expansion
Payment platforms increasingly issue 1099-K forms. Many Long Islanders sell used items online, but the IRS interprets gross receipts as business income unless explained.
Household support and financial transfers
Helping parents, adult children, or relatives is extremely common. The IRS may view these transfers — or reimbursements — as income if analyzed without context.
These factors make underreporting notices far more common in Long Island than in many other regions.
The IRS Notice Most People Receive: The CP2000
The CP2000 is the IRS’s standard notice for income mismatches. It outlines:
- What the IRS thinks you earned
- What your return reported
- A proposed tax increase
- Additional penalties and interest
The CP2000 is not a bill. It is a proposal based on their automated system.
If you ignore it, however, the IRS turns the proposal into an official assessment and may begin collection actions.
Fine & Clear regularly reduces or removes CP2000 balances once the IRS receives a properly documented response.
Common Long Island Scenarios That Trigger Underreporting Notices
A W-2 arrived at the wrong address
Many taxpayers change jobs. A previous employer might send a W-2 to an old apartment or old mailbox.
A side gig issued a 1099 the taxpayer never saw
Uber, DoorDash, Instacart, and other platforms send digital forms that many people overlook.
A 1099-K issued for personal online sales
Selling furniture on Facebook Marketplace or sneakers on StockX may generate a form the IRS misinterprets as profit.
Investment sales without basis reported
Brokerage firms sometimes leave cost basis off 1099-Bs. The IRS assumes the entire sale amount is profit.
Union or trade work with multiple payroll systems
Union transfers, retro pay, corrections, and multi-employer contributions often confuse the IRS matching system.
Tips that appear understated
Restaurants, catering halls, hotels, and bars rely heavily on tips. If reported tips fall below IRS expectations, a CP2000 may follow.
Commuting reimbursements or relocation payments
Some payments are non-taxable, but the IRS system may label them as income if coded incorrectly.
Family-to-family support
A parent helping a child with rent or a sibling repaying a loan may create deposits that look like income.
These situations are all extremely common — and almost always fixable.
How Fine & Clear Tax Solutions Corrects Underreporting Problems
Step 1: Pull all IRS transcripts
Fine & Clear starts by obtaining your Wage & Income Transcript. This reveals every document the IRS has on file.
Step 2: Compare IRS data to your real income
We review your W-2s, 1099s, bank statements, stock reports, tip records, and any relevant financial activity. This helps determine whether the IRS’s assumptions are correct or based on incomplete data.
Step 3: Identify deposits that are not income
Long Islanders often move money around for personal or family reasons. Transfers, reimbursements, Venmo transactions, and loan repayments require explanation.
Step 4: Prepare corrections or an amended return
If the return needs to be updated, Fine & Clear prepares the necessary corrections. If it does not, we build a dispute package showing the IRS why their proposed change is inaccurate.
Step 5: Craft a complete response to the IRS
A strong response includes:
- A clear narrative
- Supporting documentation
- Calculations the IRS can follow
- Explanations for each discrepancy
This greatly increases the chance of resolving the issue fully.
Step 6: Prevent escalation into audits or collections
If needed, Fine & Clear requests a temporary freeze on IRS collection activity while the matter is reviewed. This prevents the problem from escalating.
Why Handling These Notices Alone Often Makes Things Worse
Many taxpayers try to respond themselves and unintentionally:
- Confirm income they do not owe tax on
- Give the IRS more information than necessary
- Misunderstand what the notice is asking
- Agree to incorrect balances out of fear
- Trigger deeper IRS scrutiny
A poorly phrased letter or incomplete explanation can turn a small mismatch into an audit.
Professional handling ensures the IRS receives only what is necessary — and exactly what supports your case.
Final Thoughts
Underreporting notices are a major source of stress for Long Island taxpayers, but they are also extremely common and highly correctable. The high cost of living, multiple income streams, gig work, investment activity, and payroll complexity in the New York metro area create countless situations the IRS’s automated system misreads.
The key is responding quickly, clearly, and strategically — before the proposed change becomes an official assessment.
Fine & Clear Tax Solutions helps taxpayers throughout Uniondale and all of Long Island correct these notices, protect themselves from further IRS action, and reestablish financial clarity.