Help with how to respond to CP2000.

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mrx
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Help with how to respond to CP2000.

Post by mrx » Tue Mar 13, 2018 10:31 pm

I received a CP2000 from the IRA regarding my 2016 taxes and I am looking for an advice on how to respond.

I will keep this short and simple, if anyone is interested in the details I can add them later.

The super short summary:

The IRA thinks I owe them $10k in taxes, I recalculated everything and I am pretty sure I owe them $60. The problem is that I see two options on the "How to respond" section: a) You agree with them and pay, b) You disagree with them, do not pay, and provide more evidence.

I am not sure how can I do something in between. I basically want to disagree, provide more evidence, and pay $60. What is the right way to do this? Just assume they would accept my defense and send the check along with the papers? or maybe send my defense papers, wait for them to respond with another CP2000 with the right amount, then pay it?

Has anyone had such an experience before?

CurlyDave
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Re: Help with how to respond to CP2000.

Post by CurlyDave » Tue Mar 13, 2018 10:42 pm

Talk to a tax attorney NOW.

Before you do anything.

$10k is just on the borderline of being worth hiring an attorney, but you can get advice for a small fraction of the $10k.

sco
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Re: Help with how to respond to CP2000.

Post by sco » Tue Mar 13, 2018 10:57 pm

Actually when I got one of these I made a phone call to them. Less than a 1hr phone call, the whole issue was closed out, forms were amended, etc. It all went way better than expected. I only called to gather more information on the issue.

mrx
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Re: Help with how to respond to CP2000.

Post by mrx » Tue Mar 13, 2018 11:39 pm

CurlyDave wrote:
Tue Mar 13, 2018 10:42 pm
Talk to a tax attorney NOW.

Before you do anything.

$10k is just on the borderline of being worth hiring an attorney, but you can get advice for a small fraction of the $10k.
I am 99% sure there is no issue. In fact, they have exactly mentioned my case in one of the "potential issues". They received a 1099 from a broker with 0 cost basis instead of the full amount. So They think I have 30k income selling my employer RSUs when I only had $200 of short term capital gain.

sco wrote:
Tue Mar 13, 2018 10:57 pm
Actually when I got one of these I made a phone call to them. Less than a 1hr phone call, the whole issue was closed out, forms were amended, etc. It all went way better than expected. I only called to gather more information on the issue.
Would please tell me how to contact them? I tried today but all the numbers I called ended up in an automatic voice mail.

Easy Rhino
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Re: Help with how to respond to CP2000.

Post by Easy Rhino » Tue Mar 13, 2018 11:51 pm

When I tried to call a year or two ago, the hold time was literally approx. 6 hours.

I just responded in writing, and waited about 3 months for the response. (not exaggerating again).

It all worked out OK.

mrx
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Re: Help with how to respond to CP2000.

Post by mrx » Wed Mar 14, 2018 12:00 am

Easy Rhino wrote:
Tue Mar 13, 2018 11:51 pm
When I tried to call a year or two ago, the hold time was literally approx. 6 hours.

I just responded in writing, and waited about 3 months for the response. (not exaggerating again).

It all worked out OK.
May I know what was your response? Did you end up paying the full amount, part of it, or none of it?

sco
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Re: Help with how to respond to CP2000.

Post by sco » Wed Mar 14, 2018 12:42 am

mrx wrote:
Tue Mar 13, 2018 11:39 pm
CurlyDave wrote:
Tue Mar 13, 2018 10:42 pm
Talk to a tax attorney NOW.

Before you do anything.

$10k is just on the borderline of being worth hiring an attorney, but you can get advice for a small fraction of the $10k.
I am 99% sure there is no issue. In fact, they have exactly mentioned my case in one of the "potential issues". They received a 1099 from a broker with 0 cost basis instead of the full amount. So They think I have 30k income selling my employer RSUs when I only had $200 of short term capital gain.

sco wrote:
Tue Mar 13, 2018 10:57 pm
Actually when I got one of these I made a phone call to them. Less than a 1hr phone call, the whole issue was closed out, forms were amended, etc. It all went way better than expected. I only called to gather more information on the issue.
Would please tell me how to contact them? I tried today but all the numbers I called ended up in an automatic voice mail.
I was just a phone call to their number on the form. There was a hold, that i put on speaker and mute and basically refused to hang up until resolved.. It was a weekday during normal business hours, don't try calling on the weekends, etc....

noraz123
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Re: Help with how to respond to CP2000.

Post by noraz123 » Wed Mar 14, 2018 1:29 am

mrx wrote:
Wed Mar 14, 2018 12:00 am

May I know what was your response? Did you end up paying the full amount, part of it, or none of it?
I can't speak for Easy Rhino, but I had the exact same issue last year. I had two issues actually - the irs seeing $0 cost basis when it wasn't and I also missed reporting $80 of dividends. I wrote a letter saying I disagreed with the gains, but agreed that the dividends were not declared. I also sent documents showing the correct cost basis as well as sending along 1040x (amended return) and a check for the additional tax I owed.

It took a few months but the irs responded and agreed.

While annoying, pretty easy to address. Send a letter (mostly) disputing their accounting along with any supporting documents for the correct cost basis (e.g., 1099s).

If you do owe an additional $60, send an amended return and payment. I would send payment of $70 explaining you know you owe interest but not sure how much. The irs will either send you back the difference or a bill for a couple dollars more.

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MossySF
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Re: Help with how to respond to CP2000.

Post by MossySF » Wed Mar 14, 2018 2:21 am

They do answer the phones. You just will be on hold for a long time but it does happen. I've done this before ... called, they fixed the error in their system on the call and then sent me a new notice with the proper amount.

inbox788
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Re: Help with how to respond to CP2000.

Post by inbox788 » Wed Mar 14, 2018 3:21 am

You got a letter now? When did you submit your return? They're busy right now until after April 15, so hold times will be long, but hopefully they're staffing more people as well. I'd just call and see what you can find out. It might be simpler than you think, or at least you'll find out you need help. In any case, that's what speaker phones are while you do something else. Try different hours to see if the hold times are lower. Try earlier hours, right around opening or afternoons, right after lunch or an hour before they close, and you might get lucky during one of their less busy hours. And if you can't get through in a reasonable time now, in a month, things should slow down quite a bit for them.

Longdog
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Re: Help with how to respond to CP2000.

Post by Longdog » Wed Mar 14, 2018 4:50 am

mrx wrote:
Tue Mar 13, 2018 11:39 pm
CurlyDave wrote:
Tue Mar 13, 2018 10:42 pm
Talk to a tax attorney NOW.

Before you do anything.

$10k is just on the borderline of being worth hiring an attorney, but you can get advice for a small fraction of the $10k.
I am 99% sure there is no issue. In fact, they have exactly mentioned my case in one of the "potential issues". They received a 1099 from a broker with 0 cost basis instead of the full amount. So They think I have 30k income selling my employer RSUs when I only had $200 of short term capital gain.
When you reported the sale on your tax return, did you identify it as a non-covered security?
Steve

retiredjg
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Re: Help with how to respond to CP2000.

Post by retiredjg » Wed Mar 14, 2018 7:57 am

mrx wrote:
Tue Mar 13, 2018 10:31 pm
The IRA thinks I owe them $10k in taxes, I recalculated everything and I am pretty sure I owe them $60. The problem is that I see two options on the "How to respond" section: a) You agree with them and pay, b) You disagree with them, do not pay, and provide more evidence.

I am not sure how can I do something in between.
In my mind, you are not doing something in between. You disagree, you do not want to pay what they say you owe, and you do want to provide more evidence.

I suppose you could include a check for $60, but I wouldn't because it might muddy the issue especially if not accompanied by a 1040x. You will end up paying more penalty on the $60, but how big could that be?

mrx
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Re: Help with how to respond to CP2000.

Post by mrx » Wed Mar 14, 2018 10:16 pm

Thank you everyone for the response. I tried to call today and gave up after 30 minutes wait (I have to run to a meeting). I decided to mail all the required papers along with a $60 check and see what will happen from there.

Chip
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Re: Help with how to respond to CP2000.

Post by Chip » Thu Mar 15, 2018 4:10 am

mrx wrote:
Wed Mar 14, 2018 10:16 pm
Thank you everyone for the response. I tried to call today and gave up after 30 minutes wait (I have to run to a meeting). I decided to mail all the required papers along with a $60 check and see what will happen from there.
As others have mentioned, please don't send in a $60 check unless you are also sending in an amended return. Be sure to fill out the reasons for the amendment on the 1040x. And don't forget to amend your state return, as your state will likely get the CP2000 info from the IRS.

Dudley
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Re: Help with how to respond to CP2000.

Post by Dudley » Thu Mar 15, 2018 4:24 am

mrx wrote:
Tue Mar 13, 2018 11:39 pm
They received a 1099 from a broker with 0 cost basis instead of the full amount. So They think I have 30k income selling my employer RSUs when I only had $200 of short term capital gain.
Did your employer report the proceeds of this RSU sale as income on your W2 ? If so, you need to adjust the basis by that amount. If so, resubmitting the revised return with a covering letter should be sufficient. Maybe you need to consult with a competent tax person familiar with stock options, RSUs etc (a CFA, an Enrolled Agent,,) and get them to redo the return. I would quiz them beforehand, most, sadly, are laking in knowledge of such. You may want to wait to post-tax April tac filing.

NotWhoYouThink
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Re: Help with how to respond to CP2000.

Post by NotWhoYouThink » Thu Mar 15, 2018 7:58 am

Dudley wrote:
Thu Mar 15, 2018 4:24 am
mrx wrote:
Tue Mar 13, 2018 11:39 pm
They received a 1099 from a broker with 0 cost basis instead of the full amount. So They think I have 30k income selling my employer RSUs when I only had $200 of short term capital gain.
Did your employer report the proceeds of this RSU sale as income on your W2 ? If so, you need to adjust the basis by that amount. If so, resubmitting the revised return with a covering letter should be sufficient. Maybe you need to consult with a competent tax person familiar with stock options, RSUs etc (a CFA, an Enrolled Agent,,) and get them to redo the return. I would quiz them beforehand, most, sadly, are laking in knowledge of such. You may want to wait to post-tax April tac filing.
Chip wrote:
Thu Mar 15, 2018 4:10 am
mrx wrote:
Wed Mar 14, 2018 10:16 pm
Thank you everyone for the response. I tried to call today and gave up after 30 minutes wait (I have to run to a meeting). I decided to mail all the required papers along with a $60 check and see what will happen from there.
As others have mentioned, please don't send in a $60 check unless you are also sending in an amended return. Be sure to fill out the reasons for the amendment on the 1040x. And don't forget to amend your state return, as your state will likely get the CP2000 info from the IRS.
My experience with CP2000 letters is that they instruct you that you DO NOT need to submit a 1040X to correct the return if you agree with their proposed changes. Submitting one would then just gum up the works.

And of course if you do not agree with their changes and just need to document the cost basis of the RSUs, then you still don't need to complete a 1040X because there is nothing to correct.

Letters from the IRS tend to cause adrenaline fueled fight-or-flight responses, but mostly reading the letters carefully and responding to the stated claims clearly is good enough, often no need to run to a CPU or EA for simple situations.

ryman554
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Re: Help with how to respond to CP2000.

Post by ryman554 » Thu Mar 15, 2018 8:56 am

NotWhoYouThink wrote:
Thu Mar 15, 2018 7:58 am
mrx wrote:
Wed Mar 14, 2018 10:16 pm
Thank you everyone for the response. I tried to call today and gave up after 30 minutes wait (I have to run to a meeting). I decided to mail all the required papers along with a $60 check and see what will happen from there.
My experience with CP2000 letters is that they instruct you that you DO NOT need to submit a 1040X to correct the return if you agree with their proposed changes. Submitting one would then just gum up the works.

And of course if you do not agree with their changes and just need to document the cost basis of the RSUs, then you still don't need to complete a 1040X because there is nothing to correct.
+1

It is a *bad* idea to file an amended return when replying to a CP2000, since you now have two open items on your return instead of one. It may work out in the end, but the best thing to do is to reply to the CP2000 with evidence. If said evidence says something different than the initial return and/or CP2000 request, ie those $60, then state so in the response letter with the appropriate professional apology.

IRS will most likely agree, and say you owe $60 and tell you what to do next. You may or may not have to file an amended return.

Leesbro63
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Re: Help with how to respond to CP2000.

Post by Leesbro63 » Thu Mar 15, 2018 9:29 am

My own experience has been to respond by certified mail, with a very short, concise response, sending as little documentation as necessary. Include the original CP2000 for them to easily reference. Copy everything. In about a month, you'll get something that says they received your reply. Then in about another month, if all's well, you'll get a get out of jail free card (letter stating the matter is closed and you owe zero). Or you might get another "we're still reviewing your reply" which means they haven't processed it yet. Or you could get something more serious if they still believe they are right. At that point you can either send further documentation or get professional help. Usually it doesn't get this far if the taxpayer is in the right and can easily show it. I don't like phone calls for a few reasons...one is it's hard to get through and to the right person. Two is you can't be sure that who you're talking to today will be backed up by someone else tomorrow. It's too easy for phone advice to be denied etc. Certified mail is about $7 but I think it's worth it. Also, be sure to write on your letter "CERTIFIED MAIL, RETURN RECEIPT REQUESTED NUMBER <fill in the certified mail article number>. They way THEY know that you have a record of it. And once you copy everything, it clearly proves that you responded in a timely manner.

Take this seriously, but don't over react.

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midareff
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Re: Help with how to respond to CP2000.

Post by midareff » Thu Mar 15, 2018 10:11 am

mrx wrote:
Tue Mar 13, 2018 11:39 pm
CurlyDave wrote:
Tue Mar 13, 2018 10:42 pm
Talk to a tax attorney NOW.

Before you do anything.

$10k is just on the borderline of being worth hiring an attorney, but you can get advice for a small fraction of the $10k.
I am 99% sure there is no issue. In fact, they have exactly mentioned my case in one of the "potential issues". They received a 1099 from a broker with 0 cost basis instead of the full amount. So They think I have 30k income selling my employer RSUs when I only had $200 of short term capital gain.
If you can document the correct cost basis I would do so by return letter with copies of your documents showing the correct cost basis and correct taxable gain. If you think you underpaid by $60 I would include a check and an explanation of the revision as well. I suspect your initial letter was computer generated and once you get to a living person the explanation, when accompanied by documentary proof, should suffice.
sco wrote:
Tue Mar 13, 2018 10:57 pm
Actually when I got one of these I made a phone call to them. Less than a 1hr phone call, the whole issue was closed out, forms were amended, etc. It all went way better than expected. I only called to gather more information on the issue.
I think regardless of what you might say on the phone they will want to see documentary proof of your IRS stated gain... that is, cost and sales prices. I'd get that on file with them ASAP.
Would please tell me how to contact them? I tried today but all the numbers I called ended up in an automatic voice mail.

Chip
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Re: Help with how to respond to CP2000.

Post by Chip » Thu Mar 15, 2018 1:54 pm

NotWhoYouThink wrote:
Thu Mar 15, 2018 7:58 am
My experience with CP2000 letters is that they instruct you that you DO NOT need to submit a 1040X to correct the return if you agree with their proposed changes. Submitting one would then just gum up the works.

And of course if you do not agree with their changes and just need to document the cost basis of the RSUs, then you still don't need to complete a 1040X because there is nothing to correct.
The OP submitted an incorrect original return ($0 cost basis for RSUs) and now proposes to disagree with the CP2000, send a letter AND a check for a different amount than the CP2000 suggests. My advice is don't send a check without a 1040X. If no check is sent, fine, just send the letter. Then wait for the IRS to bill.

I have responded to CP2000s with and without 1040Xs. Both ways worked, though the one with the 1040X was quite a few years ago. I agree with other replies that certified mail, return receipt is a good way to send it in.

libralibra
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Re: Help with how to respond to CP2000.

Post by libralibra » Thu Mar 15, 2018 4:52 pm

noraz123 wrote:
Wed Mar 14, 2018 1:29 am
mrx wrote:
Wed Mar 14, 2018 12:00 am

May I know what was your response? Did you end up paying the full amount, part of it, or none of it?
I can't speak for Easy Rhino, but I had the exact same issue last year. I had two issues actually - the irs seeing $0 cost basis when it wasn't and I also missed reporting $80 of dividends. I wrote a letter saying I disagreed with the gains, but agreed that the dividends were not declared. I also sent documents showing the correct cost basis as well as sending along 1040x (amended return) and a check for the additional tax I owed.

It took a few months but the irs responded and agreed.
In your and OP's cases, was the transaction reported on the original return at all? I.e. did you include it with the correct basis and the IRS complained and changed it to 0, or was it left off completely due to an oversight and the IRS caught it and just assigned a default basis of 0?

I can see the latter happening, but it worries me if the former happened, because of the unnecessary additional stress it causes.

noraz123
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Re: Help with how to respond to CP2000.

Post by noraz123 » Fri Mar 16, 2018 10:44 am

libralibra wrote:
Thu Mar 15, 2018 4:52 pm
In your and OP's cases, was the transaction reported on the original return at all? I.e. did you include it with the correct basis and the IRS complained and changed it to 0, or was it left off completely due to an oversight and the IRS caught it and just assigned a default basis of 0?

I can see the latter happening, but it worries me if the former happened, because of the unnecessary additional stress it causes.
For the incorrect cost basis, I correctly reported it on my tax return. However, the challenge was that I didn't put a line item for each transaction, rather I listed a consolidated line item for long term and short term gains. When the IRS reported that wrong tax basis, I then had to send in 1099's showing the correct cost basis and that I properly reported and totaled my gains.

Leaving out gains (or losses) due to oversight can also happen, but is easily corrected. As mentioned, in addition to the incorrect cost basis, I also missed reporting $80 of dividends. While I had to file a 1040X in addition to sending 1099's to resolve the issue of incorrect cost basis, this too, wasn't much work, and easily enough solved.

Takeaways for me:
  • CP2000 are common, especially incorrect cost bases. These shouldn't cause too much worry. A well written letter with documentation to IRS will often resolve the issues.
  • Mistakes happen. While the IRS was wrong about the cost basis, I did indeed miss reporting $80 of dividends. At first, I felt terrible as I thought the IRS would think I was a tax fraud. But once I filed the 1040X and paid the tax and interest due on this, I felt that both the IRS and I had spent more effort than the additional tax was worth.
  • List individual line items for capital gains on tax return. In my case, I had fired my wife's financial advisor, and closed out a lot of small tax lots. The brokerage didn't have any auto-import into H&R Block software, and both the 1099 and H&R Block tax software gave me the easy out of listing a consolidated line item for long term and short term gains. I think that if I had listed individual line items for each tax lot, even if the IRS still claimed an incorrect cost basis, it would have made it much easier to explain (ie, would have required writing a much shorter letter to IRS).

libralibra
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Re: Help with how to respond to CP2000.

Post by libralibra » Fri Mar 16, 2018 2:08 pm

noraz123 wrote:
Fri Mar 16, 2018 10:44 am
  • List individual line items for capital gains on tax return. In my case, I had fired my wife's financial advisor, and closed out a lot of small tax lots. The brokerage didn't have any auto-import into H&R Block software, and both the 1099 and H&R Block tax software gave me the easy out of listing a consolidated line item for long term and short term gains. I think that if I had listed individual line items for each tax lot, even if the IRS still claimed an incorrect cost basis, it would have made it much easier to explain (ie, would have required writing a much shorter letter to IRS).
Thanks for the details. I saw that option in TT and read somewhere about it, but didn't look too deeply. I just assumed that you were still required to send in an attachment listing each transaction (e.g. a table from Excel or your 1099), so what you said makes sense.

btw, for a lot of transactions, TT will import a .txf file. For simple cases, you can create a .csv file and convert it to a .txf file using this site http://www.easytxf.com/

noraz123
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Re: Help with how to respond to CP2000.

Post by noraz123 » Fri Mar 16, 2018 6:03 pm

libralibra wrote:
Fri Mar 16, 2018 2:08 pm
...
btw, for a lot of transactions, TT will import a .txf file. For simple cases, you can create a .csv file and convert it to a .txf file using this site http://www.easytxf.com/
This is a pro tip! Thanks. Hoping that I won't need this going forward, but VERY nice to know it is an option if needed.

Gill
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Re: Help with how to respond to CP2000.

Post by Gill » Fri Mar 16, 2018 8:27 pm

CurlyDave wrote:
Tue Mar 13, 2018 10:42 pm
Talk to a tax attorney NOW.

Before you do anything.

$10k is just on the borderline of being worth hiring an attorney, but you can get advice for a small fraction of the $10k.
Certainly an overkill at this point and not necessary. OP can handle it himself or use the services of an EA if eventually deemed necessary.
Gill

noraz123
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Re: Help with how to respond to CP2000.

Post by noraz123 » Sat Mar 17, 2018 2:58 pm

libralibra wrote:
Fri Mar 16, 2018 2:08 pm

Thanks for the details. I saw that option in TT and read somewhere about it, but didn't look too deeply. I just assumed that you were still required to send in an attachment listing each transaction...
If you file by mail, this is true. But if you file electronically, you don't send in 1099s. Perhaps another takeaway is to file by mail.

talzara
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Re: Help with how to respond to CP2000.

Post by talzara » Sat Mar 17, 2018 6:54 pm

noraz123 wrote:
Sat Mar 17, 2018 2:58 pm
libralibra wrote:
Fri Mar 16, 2018 2:08 pm

Thanks for the details. I saw that option in TT and read somewhere about it, but didn't look too deeply. I just assumed that you were still required to send in an attachment listing each transaction...
If you file by mail, this is true. But if you file electronically, you don't send in 1099s. Perhaps another takeaway is to file by mail.
You do not submit the 1099-B even if you file on paper. The brokerage transmits it electronically to the IRS.

You can use a summary line only if you agree with the 1099-B. If you disagree, then you must itemize each trade. You're supposed to report the incorrect basis, and then put in an adjustment with a code. The IRS can then match the basis with the 1099-B, and you won't get a CP-2000. (You might get audited if they disagree with the adjustment, though.)

All of this is on Schedule D and Form 8949 -- not even in the instructions, but right on the form.

This is an example of how tax software can actually cause mistakes. The interview is more confusing than the IRS forms.

mrx
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Re: Help with how to respond to CP2000.

Post by mrx » Fri May 18, 2018 11:09 am

libralibra wrote:
Thu Mar 15, 2018 4:52 pm
noraz123 wrote:
Wed Mar 14, 2018 1:29 am
mrx wrote:
Wed Mar 14, 2018 12:00 am

May I know what was your response? Did you end up paying the full amount, part of it, or none of it?
I can't speak for Easy Rhino, but I had the exact same issue last year. I had two issues actually - the irs seeing $0 cost basis when it wasn't and I also missed reporting $80 of dividends. I wrote a letter saying I disagreed with the gains, but agreed that the dividends were not declared. I also sent documents showing the correct cost basis as well as sending along 1040x (amended return) and a check for the additional tax I owed.

It took a few months but the irs responded and agreed.
In your and OP's cases, was the transaction reported on the original return at all? I.e. did you include it with the correct basis and the IRS complained and changed it to 0, or was it left off completely due to an oversight and the IRS caught it and just assigned a default basis of 0?

I can see the latter happening, but it worries me if the former happened, because of the unnecessary additional stress it causes.
At least in my case it was the latter. Ignorant me thought I do not need to report it since the RSUs are already reported in my W2 and I did not realize I had $200 gains from the same day sale. So I thought why wait for 1040x when I can get my return today.

mrx
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Re: Help with how to respond to CP2000.

Post by mrx » Fri May 18, 2018 11:12 am

Thank you again everyone. Since this caught attention again I thought I would post an update:

I followed the general advice here. Certified mail, all required information, copies everything, $60 check.

The mail was delivered and the check was cashed out two weeks later. I received the first letter from the IRS (We got your letter and we are investigating). So far things look pretty well.

I guess I am expecting the second letter (You are off the hook) some time soon.

Thanks for the great help!

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