My first CP2000 letter from IRS! Am I missing something?

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marcopolo
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My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Thu Apr 05, 2018 4:39 pm

I received a CP2000 letter from IRS today indicating they think i owe a chunk of unpaid taxes from 2016.

They refer to a "retirement income distribution" that i did not report as taxable. They then reference a 1099 form that they received with a distribution code G. This distribution code is right in the letter they sent me.

So, i look up my old 1099 form, it has $0.00 listed in Box 2a "taxable distribution", The IRA/SEP box is checked, and the distribution code is G, which is "Direct Rollover to Qualified Plan".

This was a rollover I did from a SEP IRA (from some consulting work) into my full time employer's 401k plan to make way for back door Roth.

I am pretty sure such rollovers are not taxable. The IRS got this 1099, acknowledges that it has Code G for distribution. Why would they think this is taxable? Am i missing something, or is this most likely just a book keeping error?

Anything I should be doing other that sending back a letter stating that i disagree with their proposed changes, attaching the 1099 showing the information listed above?
Once in a while you get shown the light, in the strangest of places if you look at it right.

jebmke
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by jebmke » Thu Apr 05, 2018 4:42 pm

If you reported this on your return, no tax impact notwithstanding then it appears that they are in error.
When you discover that you are riding a dead horse, the best strategy is to dismount.

marcopolo
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Thu Apr 05, 2018 4:46 pm

jebmke wrote:
Thu Apr 05, 2018 4:42 pm
If you reported this on your return, no tax impact notwithstanding then it appears that they are in error.
Yes. I reported it as part of my "Total Distribution" (Line 15a), but did not include it in "taxable distributions" (Line 15b).
I believe that is the right way to report such rollovers.
Once in a while you get shown the light, in the strangest of places if you look at it right.

TwstdSista
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by TwstdSista » Thu Apr 05, 2018 4:48 pm

Isn't there a one rollover per year rule? Did you do two rollovers that year?

Assuming the answer is no (or that I'm wrong about the one rollover rule), I'd send them the original 1099 along with any and all paperwork you might have showing the distribution from and the deposit to a qualified account -- the 1099R and Form 5498, plus any statements, a copy of your 1040, etc.

jebmke
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by jebmke » Thu Apr 05, 2018 4:50 pm

The 1099-R with Code G indicates an direct rollover (they can only code it G when they know where the money went). I'm not aware of any limitation on direct rollovers.
When you discover that you are riding a dead horse, the best strategy is to dismount.

retiredjg
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by retiredjg » Thu Apr 05, 2018 5:00 pm

TwstdSista wrote:
Thu Apr 05, 2018 4:48 pm
Isn't there a one rollover per year rule? Did you do two rollovers that year?
The one rollover per year is IRA to IRA and refers to a 60 day rollover where the owner actually gets the cash money in between the two IRAs. Also, a transfer/rollover that starts or ends in a qualified work plan like a 401k would not count as the "one" per year.

So that is not the problem. I'm not sure there actually is a problem for the poster to fix.

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MP123
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by MP123 » Thu Apr 05, 2018 5:07 pm

marcopolo wrote:
Thu Apr 05, 2018 4:46 pm
jebmke wrote:
Thu Apr 05, 2018 4:42 pm
If you reported this on your return, no tax impact notwithstanding then it appears that they are in error.
Yes. I reported it as part of my "Total Distribution" (Line 15a), but did not include it in "taxable distributions" (Line 15b).
I believe that is the right way to report such rollovers.
My understanding is that you also write (or the software prints) "ROLLOVER" next to it.

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HueyLD
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by HueyLD » Thu Apr 05, 2018 5:09 pm

Did you use a tax software or did you prepare the return by hand?

ofckrupke
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by ofckrupke » Thu Apr 05, 2018 5:10 pm

marcopolo wrote:
Thu Apr 05, 2018 4:46 pm
jebmke wrote:
Thu Apr 05, 2018 4:42 pm
If you reported this on your return, no tax impact notwithstanding then it appears that they are in error.
Yes. I reported it as part of my "Total Distribution" (Line 15a), but did not include it in "taxable distributions" (Line 15b).
I believe that is the right way to report such rollovers.
OK. Did you attach (or did the software generate) a statement/page at the back of the original return "explaining what you did"?
Such is called for in the instructions for Form 1040 line 15 (at the end of the section on "Exception 1", which covers your IRA->Qualified Plan rollover).

marcopolo
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Thu Apr 05, 2018 5:16 pm

HueyLD wrote:
Thu Apr 05, 2018 5:09 pm
Did you use a tax software or did you prepare the return by hand?
Turbo tax premier, checked by hand
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Thu Apr 05, 2018 5:21 pm

ofckrupke wrote:
Thu Apr 05, 2018 5:10 pm
marcopolo wrote:
Thu Apr 05, 2018 4:46 pm
jebmke wrote:
Thu Apr 05, 2018 4:42 pm
If you reported this on your return, no tax impact notwithstanding then it appears that they are in error.
Yes. I reported it as part of my "Total Distribution" (Line 15a), but did not include it in "taxable distributions" (Line 15b).
I believe that is the right way to report such rollovers.
OK. Did you attach (or did the software generate) a statement/page at the back of the original return "explaining what you did"?
Such is called for in the instructions for Form 1040 line 15 (at the end of the section on "Exception 1", which covers your IRA->Qualified Plan rollover).
Ok, this might be the issue. I electronically filed using TurboTax Premier. I am not sure if any such statement gets generated, I will need to double check that.
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Thu Apr 05, 2018 5:22 pm

MP123 wrote:
Thu Apr 05, 2018 5:07 pm
marcopolo wrote:
Thu Apr 05, 2018 4:46 pm
jebmke wrote:
Thu Apr 05, 2018 4:42 pm
If you reported this on your return, no tax impact notwithstanding then it appears that they are in error.
Yes. I reported it as part of my "Total Distribution" (Line 15a), but did not include it in "taxable distributions" (Line 15b).
I believe that is the right way to report such rollovers.
My understanding is that you also write (or the software prints) "ROLLOVER" next to it.
Yes. That is on the form.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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HueyLD
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by HueyLD » Thu Apr 05, 2018 5:40 pm

My guess is that the IRS made a mistake.

If you have access to the online tax transcript, you can get one and see what their records look like. I am curious if something happened in the e-filing and the code G was dropped.

FactualFran
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by FactualFran » Thu Apr 05, 2018 6:11 pm

Another guess is that the IRS was not able to reconcile IRA distributions on 1099-R forms with IRA rollover contributions on 5498 forms. If the tax return had included a statement that a rollover was done from an IRA to a 401(k), as the instructions for Form 1040 indicated, the IRS would have known the reason for them not being able to reconcile information on copies of the 1099-R and 5498 forms that they received from IRA custodians.

marcopolo
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Thu Apr 05, 2018 6:42 pm

FactualFran wrote:
Thu Apr 05, 2018 6:11 pm
Another guess is that the IRS was not able to reconcile IRA distributions on 1099-R forms with IRA rollover contributions on 5498 forms. If the tax return had included a statement that a rollover was done from an IRA to a 401(k), as the instructions for Form 1040 indicated, the IRS would have known the reason for them not being able to reconcile information on copies of the 1099-R and 5498 forms that they received from IRA custodians.
Thanks for all the help everyone.

This is my best guess as to the cause of their Inquiry. I am hopeful a letter explaining the Rollover, along with the associated documentation will resolve the issue.
Once in a while you get shown the light, in the strangest of places if you look at it right.

SFGuy
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by SFGuy » Fri May 25, 2018 8:35 pm

To OP: I have the exact same fact pattern as you and received a similar CP2501 today. I plan to send letter to IRS with a copy of my 1099-R coded G along with 401(k) statement showing rollover funds were received by my 401(k). Just curious if you have heard back from IRS or if you have any suggestions on tips. Thanks!

marcopolo
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Fri May 25, 2018 9:26 pm

SFGuy wrote:
Fri May 25, 2018 8:35 pm
To OP: I have the exact same fact pattern as you and received a similar CP2501 today. I plan to send letter to IRS with a copy of my 1099-R coded G along with 401(k) statement showing rollover funds were received by my 401(k). Just curious if you have heard back from IRS or if you have any suggestions on tips. Thanks!
That is exactly what I did.
I received a letter just recently that they received my information and will review it and let me know the outcome.
I suspect it will be several months before I hear about a final disposition of this matter.
Once in a while you get shown the light, in the strangest of places if you look at it right.

RudyS
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by RudyS » Fri May 25, 2018 9:58 pm

IRS makes mistakes. A couple of years ago I got a CP2000 claiming I did not report the distribution from my wife's IRA. But I did, together with mine. These are lumped on line 15. The total was the sum of the two 1099s, I don't know how they could have missed it. I wrote an explanation, and a while later got a reply that I didn't owe any tax.

HappyGuy
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by HappyGuy » Fri May 25, 2018 10:56 pm

If there is an IRS field office nearby, it might be easier to see an agent.

Last time the agent said he would drop the case after I showed him the mistake on their letter.

SFGuy
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by SFGuy » Fri May 25, 2018 11:45 pm

marcopolo wrote:
Fri May 25, 2018 9:26 pm
SFGuy wrote:
Fri May 25, 2018 8:35 pm
To OP: I have the exact same fact pattern as you and received a similar CP2501 today. I plan to send letter to IRS with a copy of my 1099-R coded G along with 401(k) statement showing rollover funds were received by my 401(k). Just curious if you have heard back from IRS or if you have any suggestions on tips. Thanks!
That is exactly what I did.
I received a letter just recently that they received my information and will review it and let me know the outcome.
I suspect it will be several months before I hear about a final disposition of this matter.
Thanks! I will do the same.

MikeG62
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by MikeG62 » Sat May 26, 2018 6:30 am

Although a different fact pattern, my daughter received a CP2000 on Thursday relating to the American Opportunity Tax Credit taken by her in 2016.

IRS is questioning whether the amount of Tuition reported by her University on form 1098-T was actually paid (her University only reports Tuition and related fees in box 2 - they leave box 1 blank). The letter said "we don't considered amounts they billed you as proof of actual expenses you paid' and asked for a "signed detailed explanation" of the amounts paid.

I spent a couple of hours drafting the letter for her to use as well as pulling together the support documentation. We mailed it yesterday. Will see when and what we hear back and how quickly.

Seems the IRS is in CP2000 mode these days. I have never received an IRS notice in ~35 years of filing tax returns.
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marcopolo
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by marcopolo » Mon Jun 18, 2018 2:36 pm

FOLLOW UP:
I received a letter today from the IRS saying the information i provided was sufficient and they have closed the case.
So, a little over 2 months from when i sent them the response. Seems not too bad given it occurred during tax season.
SFGuy wrote:
Fri May 25, 2018 11:45 pm
marcopolo wrote:
Fri May 25, 2018 9:26 pm
SFGuy wrote:
Fri May 25, 2018 8:35 pm
To OP: I have the exact same fact pattern as you and received a similar CP2501 today. I plan to send letter to IRS with a copy of my 1099-R coded G along with 401(k) statement showing rollover funds were received by my 401(k). Just curious if you have heard back from IRS or if you have any suggestions on tips. Thanks!
That is exactly what I did.
I received a letter just recently that they received my information and will review it and let me know the outcome.
I suspect it will be several months before I hear about a final disposition of this matter.
Thanks! I will do the same.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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oldcomputerguy
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by oldcomputerguy » Mon Jun 18, 2018 2:40 pm

Nice to hear a happy ending to an IRS story. Thanks for the follow-up.
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47Percent
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Re: My first CP2000 letter from IRS! Am I missing something?

Post by 47Percent » Mon Jun 18, 2018 4:28 pm

I received a cp2000 for a similar reason as the OP -- threatening a $14,500 in additional tax payment!
It was not a rollover but a recharacterization.

IRS had all the ROTH conversion documents, but didn't see the recharacterization. I had noted everything correctly, and had statements to the effect with the return etc. I didn't attach a 5498 as it was not ready by then, and also I filed electronically.

But, anyway, I sent them a response with all the details and forms 2 weeks ago. It looks like it worked because when I checked online there was no tax due and no penalty. I am hoping to receive a confirmation letter in upcoming weeks.

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