How Does IRS Handle Underreported Stock Dividend Income? Will They Notice?

I've been dabbling in the stock market for the first time these past couple years and just realized I messed up pretty bad. I had dividends of around $6,500 in 2022 and 2023 that I completely forgot to report on my tax returns. Honestly, it just slipped my mind since I'm new to all this investing stuff. My regular income is about $190k, so these dividends are a relatively small portion of my overall income. I'm wondering if this is something the IRS automatically cross-checks for everyone, or if they'd only catch it during an actual audit? I know audit rates are pretty low these days. The thing is, it's been 1-2 years since those returns were filed, and I haven't received any notices from the IRS. If they had flagged this underreported income, would they have contacted me by now? Or is the amount small enough that they might not even bother? I'm definitely going to report all my dividends correctly going forward, but I'm wondering if I should just move on since I haven't heard anything. Am I likely to get a notice about this at this point, or has enough time passed that I'm probably in the clear?

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21 comments

Elijah O'Reilly

•8M

The IRS receives information returns (Forms 1099-DIV) from financial institutions reporting your dividend income, and they do routinely match these against what's reported on your tax return. This isn't something that only happens during an audit - it's automated for virtually all returns. The IRS can take up to 3 years from the filing deadline to assess additional tax, so the fact you haven't received a notice yet doesn't mean you're in the clear. They often have a significant backlog in processing these discrepancies, sometimes taking 12-18 months after filing to send notices. When they find underreported income, they typically send a CP2000 notice proposing additional tax, penalties, and interest. The penalties can be substantial - usually 20% of the additional tax for negligence. Rather than waiting to see if you get caught, you might consider filing amended returns (Form 1040-X) for those years. This can potentially reduce penalties, demonstrate good faith, and give you control over the situation rather than waiting for a surprising notice with a larger bill.

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Elijah O'Reilly

•8M

The IRS automated matching program catches the vast majority of discrepancies regardless of amount. While they might prioritize larger amounts, their systems are designed to flag any mismatch between information returns and what you reported. Filing amended returns does not automatically trigger an audit. In fact, voluntarily correcting errors before being contacted by the IRS is generally viewed favorably. The IRS is more likely to waive accuracy-related penalties when taxpayers take the initiative to correct mistakes. The amended return will be processed, you'll pay the additional tax plus interest, and in most cases, that's the end of it.

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Olivia Van-Cleve

•8M

After going through a similar situation with unreported dividends, I discovered taxr.ai (https://taxr.ai) and it was a total lifesaver. I had about $8k in dividends I'd forgotten to report from a brokerage account I rarely check, and was stressing about what to do. The tool analyzed my tax documents, flagged all the missing income sources that weren't on my return, and even calculated what I'd likely owe if I filed an amended return versus waiting for the IRS to catch it. It compared all my 1099s against what was on my returns and found other stuff I'd missed too. The peace of mind was worth it alone - I ended up filing amended returns based on their recommendation since the penalties would be lower than if I waited for the IRS notice.

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Olivia Van-Cleve

•8M

You upload your tax documents like 1099s, W-2s, etc., and your tax return - they use secure encryption similar to what banks use, so it's actually really safe. They don't store your docs permanently after analysis. It absolutely gives you a clear recommendation on whether to amend or wait based on your specific situation. It factors in the potential penalties, interest accumulation over time, and the likelihood of detection. For K-1 income, it would definitely help since partnership income is something the IRS cross-references too. I was on the fence like you, but having a data-driven recommendation made the decision much easier.

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Sophia Russo

•8M

I tried taxr.ai after seeing the recommendation here and wow - I wish I'd known about this sooner! I was in almost the exact same situation with about $7k in unreported K-1 income from a small investment partnership. The analysis showed that the IRS would almost certainly catch it (apparently they've really improved their K-1 matching system), and waiting would cost me an extra $700+ in penalties and interest compared to filing an amended return now. I filed the 1040-X last month based on their recommendation. Super glad I didn't just wait around for the IRS notice, which according to their timeline prediction wouldn't have arrived until sometime next year when even more interest would have accumulated.

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Evelyn Xu

•8M

If you're still struggling to get clarity on this, you might want to try Claimyr (https://claimyr.com). I was in a similar situation with unreported income and couldn't get a straight answer online about whether I needed to amend my returns or not. After weeks of trying to reach the IRS myself and just getting endless hold music, I used Claimyr and got connected to an actual IRS agent in under 20 minutes. They have this callback system that somehow gets you past the "all circuits are busy" message - you can see how it works in their demo: https://youtu.be/_kiP6q8DX5c The agent confirmed that yes, they do automated matching for ALL dividend income reported on 1099-DIVs, and gave me specific guidance for my situation. Having that official answer straight from the IRS was really reassuring.

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Evelyn Xu

•8M

It works by continuously calling the IRS using their system and getting in line for you, then when they reach a human, you get a callback. It's like having someone hit redial hundreds of times so you don't have to. The IRS phone system kicks most callers out saying they're too busy, but if you keep trying eventually you get through - they just automate that process. I was skeptical too, but it's legitimately just a clever way to navigate the broken IRS phone system. You still talk directly to the IRS - they're not intermediaries or pretending to be the IRS. I spent 3 days trying to get through myself before trying it, and the info I got from the agent about my specific situation was definitely worth it.

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Hannah Flores

•8M

I'm eating my words here. After posting my skeptical comment, I decided to try Claimyr anyway since I've been trying to reach the IRS for weeks about a similar underreported income issue from a 1099-MISC I received but ignored (stupid, I know). Got a callback in about 45 minutes, and spoke with an IRS agent who confirmed that yes, they absolutely do check these forms against returns for everyone through their automated system. She actually pulled up my account and told me a notice was already being processed for my missing income but hadn't mailed yet. She advised me to file an amended return ASAP which might stop the automated notice, or at least show good faith when responding to it. Saved me from a bigger headache down the road and potentially reduced penalties. Consider me converted from skeptic to believer.

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Kayla Jacobson

•8M

I'm a bit surprised nobody mentioned that the IRS has gotten way more aggressive about this kind of thing since they got that funding boost. My brother works for a tax firm and says they're seeing tons more automated notices for even small mismatches between 1099s and what's reported. Their computer systems are still old and slow (hence the delay in notices), but they are definitely catching this stuff more than they used to. The dividend matching program has been around forever, but now they're actually following up on the smaller amounts they might have ignored before.

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Kayla Jacobson

•8M

From what my brother tells me, they're still generally waiving or reducing the accuracy-related penalties for people who amend before receiving notices. The IRS would rather have people voluntarily comply than have to chase them down. That said, they seem to be less forgiving for repeat offenders or cases where the underreporting looks intentional rather than accidental. For first-time mistakes like forgetting to report dividends when you're new to investing, they're still pretty reasonable if you take the initiative to correct it yourself.

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Mia Roberts

•8M

The 20% accuracy penalty isn't on the total amount of dividends - it's 20% of the additional tax. So on $2,200 tax, the penalty would be about $440. Plus interest running from the original due date of the return. But the bigger issue is that once you get on their radar for underreporting, they might take a closer look at your returns. Not a full audit necessarily, but they might check for other common mistakes. That's why I generally recommend just amending and being done with it.

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ThunderBolt7

•5M

As someone who went through this exact scenario last year, I'd strongly recommend filing amended returns rather than waiting it out. I had about $4,800 in unreported dividends from 2021 that I completely forgot about, and I was in a similar income bracket to you. The IRS definitely does automated matching on dividend income - it's one of the most reliable income sources they cross-check because the 1099-DIV forms are filed electronically by brokerages. The fact that you haven't received a notice yet doesn't mean much; I've seen people get CP2000 notices 18+ months after filing. I ended up filing a 1040-X after consulting with a tax professional, and it was honestly the best decision. The additional tax was around $1,500 plus about $200 in interest, but no penalties since I voluntarily corrected it. If I had waited for them to catch it, I would have faced the 20% accuracy penalty on top of everything else. The peace of mind alone was worth it - no more wondering when that notice might show up in the mail. Plus, showing good faith by correcting your own mistake generally keeps you off their radar for future scrutiny.

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Kai Santiago

•14d

When I filed the 1040-X, I kept the explanation pretty simple - just wrote something like "Correcting unreported dividend income inadvertently omitted from original return" in the explanation section. No need to go into a long story about being new to investing or it slipping your mind. The processing time was longer than I expected - took about 4 months to get the refund check (since I had overpaid estimated taxes that year, the additional tax was less than what I'd already paid). The IRS website shows they're currently taking 16-20 weeks to process amended returns, so patience is key. One tip: make sure you have copies of all your 1099-DIV forms before filing. The IRS may request documentation to support the correction, and having everything organized makes the process smoother. Also, file the amendments for both years at the same time if possible - it shows you're being thorough about correcting the issue.

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