Notice of Deficiency from IRS

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dandan14
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Notice of Deficiency from IRS

Post by dandan14 »

Sigh....the IRS has sent me another love letter. After 4 back and forth letters with the IRS, the CP-2000 has now become a "90-day letter" notice of deficiency. It is clearly their error -- as I have documented in each letter to them. According to this letter, my next step is tax court. They say I owe $4000.

I talked to 2 attorneys today, and both said that we could appeal to the tax adjuster (I think that's what they called them) and that it wouldn't go to court. They both told me that going to tax court would cost me more than $4000.

Anyone have advice? Previous experience? I'm absolutely frustrated and at a loss.

I can't believe I'm going to have to pay attorneys fees to point out the IRS's error. I've already done so 4 times and gotten back the same form letter.
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Taylor Larimore
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IRS Taxpayer Advocate Service

Post by Taylor Larimore »

Hi Dan:

I would carefully follow the instructions in your letters from the IRS. They nearly always specify your options. It may be time to use the Taxpayer Advocate Service:

The Taxpayer Advocate Service is Your Voice at the IRS

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
johnny72
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Re: Notice of Deficiency from IRS

Post by johnny72 »

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Last edited by johnny72 on Fri Aug 03, 2012 6:31 am, edited 1 time in total.
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dandan14
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Re: Notice of Deficiency from IRS

Post by dandan14 »

There are 15 items of dispute, each one of them is in a 3 column layout. They show "amount reported to IRS by others," "amount reported by you," and difference.

I agree with the "amount report by others" but the "amount reported by you" is incorrect on all 15 items on their printout. I clearly show on my return a number that matches their first column.

Taylor -- thanks for pointing to the advocate service. Once I cooled off a little bit and read the letter front to back, they do offer the advocate service. So I'll be calling that Monday morning.
sscritic
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Re: Notice of Deficiency from IRS

Post by sscritic »

Two off-the-wall thoughts:

Did you e-file? Is it possible your e-file service messed up and submitted numbers that were in error? (What you are looking at as "your return" is not what was submitted.)

Are you both looking at the same tax year? It doesn't seem likely that you are looking at different years, but I said this is an off-the-wall thought.
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HueyLD
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Re: Notice of Deficiency from IRS

Post by HueyLD »

dandan14 wrote:There are 15 items of dispute, each one of them is in a 3 column layout. They show "amount reported to IRS by others," "amount reported by you," and difference.

I agree with the "amount report by others" but the "amount reported by you" is incorrect on all 15 items on their printout. I clearly show on my return a number that matches their first column.
Is there an IRS office near where you live? You can go to their local office and ask for a "transcript" of your tax return in question. And an employee there may be able to assist you in correcting the numbers in dispute. We had sent clients to local IRS office in the past and their issues were resolved by helpful IRS employees.
MarkNYC
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Re: Notice of Deficiency from IRS

Post by MarkNYC »

dandan14 wrote:Sigh....the IRS has sent me another love letter. After 4 back and forth letters with the IRS, the CP-2000 has now become a "90-day letter" notice of deficiency. It is clearly their error -- as I have documented in each letter to them. According to this letter, my next step is tax court. They say I owe $4000.

I talked to 2 attorneys today, and both said that we could appeal to the tax adjuster (I think that's what they called them) and that it wouldn't go to court. They both told me that going to tax court would cost me more than $4000.

Anyone have advice? Previous experience? I'm absolutely frustrated and at a loss.
Dan,

I assume this relates to your post on Nov 11, 2011 regarding your 2009 tax return, where you stated that:

"They flagged 22 items that they say didn't get reported... and 16 of the 22 are typical sales and absolutely correct on the return. 2 were wash sales and thus cancel out on the return (which should be correct), and 4 were option sales...The large majority of the ones they flagged are right there on Schedule D--simple stock sales."

A couple of comments, and suggestions:

I believe you when you say you should owe no additional tax, but I also think your 2009 Schedule D was not prepared properly - something was either omitted or reported incorrectly, which resulted in the computer-generated CP2000 notice . When a taxpayer sends the IRS a "disagreement" response to a CP2000 notice, if the response is either confusing, unconvincing, or lacking the necessary documentation, the IRS reviewer will often ignore the response and proceed with the proposed tax adjustment. Unfortunately, this may be what happened.

Now that a Notice of Deficiency (90 day letter) has been issued, you have entered difficult territory. In the upper right of the Notice is a phone number, and probably the name of the IRS adjuster who handled your case. I suggest you immediately call the number. The person you get will not be the reviewer on your case - just a random IRS representative. (Get the name and ID number of the person you speak to). Explain that you have written 4 times (if this is correct) trying to explain why you should not owe additional tax, and at this point you would like to speak the the individual who handled your case to try to resolve the remaining discrepancies. The phone rep may not put you in touch with the person on your case, but instead give you a fax number to send documentation supporting your position. I would insist on speaking with the reviewer on your case. If they won't allow this, then I would proceed with Taylor's advice to contact the IRS Taxpayer Advocate in your area, and be prepared to send the Advocate a written chronology of communication between you and IRS, explaining that using normal channels of communication has not resolved your situation, and be prepared to provide clear and convincing evidence of why you do not owe.
Ping Pong
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Re: Notice of Deficiency from IRS

Post by Ping Pong »

I'll tell you what the problem is. Someone filed a fraudulent return under your SSN. The IRS only processes the first one they receive (unless it's an amended return) and ignores subsequent ones. The reason the numbers don't match is because the fraudulent return doesn't have the correct numbers. They do put all versions of tax returns they receive in their computer system even though they ignore subsequent ones. If you call them and ask how many returns they received, I think you'll find the cause of your problem.
retiredjg
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Re: Notice of Deficiency from IRS

Post by retiredjg »

Wow. This is an interesting thread. Dan, please be sure to let us know what you find out.
pshonore
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Re: Notice of Deficiency from IRS

Post by pshonore »

Ping Pong wrote:I'll tell you what the problem is. Someone filed a fraudulent return under your SSN. The IRS only processes the first one they receive (unless it's an amended return) and ignores subsequent ones. The reason the numbers don't match is because the fraudulent return doesn't have the correct numbers. They do put all versions of tax returns they receive in their computer system even though they ignore subsequent ones. If you call them and ask how many returns they received, I think you'll find the cause of your problem.
You are kidding, right? The IRS most certainly rejects a return and notifies the filer of the return when it finds any SS # used on the return (including claimed dependents) was used on another return.
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Mrs.Feeley
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Re: Notice of Deficiency from IRS

Post by Mrs.Feeley »

retiredjg wrote:Wow. This is an interesting thread. Dan, please be sure to let us know what you find out.
I agree. Fascinating thread. Thank you MarkNYC and Taylor for your comments. Dandan14, I read your original posts about the IRS problems, and I hope you can get this resolved in as painless a fashion as possible. Perhaps it would be worth your while to speak with an accountant who has some IRS connections? I wish you luck! Please keep us informed.
umfundi
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Re: Notice of Deficiency from IRS

Post by umfundi »

I had an IRS issue a few years ago, and I found a CPA. He sent a bunch of explanations with very dense cover letters. The IRS went away.

It only cost me $150 above his regular tax preparation fee to resolve this. And, to be sure, it was paperwork issues.

My point is, a letter of explanation from a CPA the IRS knows may be effective and much cheaper than a lawyer.

Keith
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market timer
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Re: Notice of Deficiency from IRS

Post by market timer »

I've found the IRS surprisingly helpful in resolving these sorts of issues.
johnny72
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Re: Notice of Deficiency from IRS

Post by johnny72 »

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Taylor Larimore
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IRS policy

Post by Taylor Larimore »

It was because the IRS is trying to get money from you. They figure if you made a mitake for $100, they'll ask for $29,000 and maybe they'll get more than $100.
Johnny:

The statement above is mistaken. I was a Revenue Officer with the IRS for 5 years. We were instructed to determine the tax owed and then collect that amount--no more; no less.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
umfundi
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Re: IRS policy

Post by umfundi »

Taylor Larimore wrote:
The statement above is mistaken. I was a Revenue Officer with the IRS for 5 years. We were instructed to determine the tax owed and then collect that amount--no more; no less.

Best wishes.
Taylor
I would agree. However, if documentation is missing, the IRS will calculate your tax for you, assuming no deductions, no dependents, etc, etc. Add in interest and penalties and it quickly adds up.

Keith
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johnny72
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Re: IRS policy

Post by johnny72 »

Taylor Larimore wrote:
It was because the IRS is trying to get money from you. They figure if you made a mitake for $100, they'll ask for $29,000 and maybe they'll get more than $100.
Johnny:

The statement above is mistaken. I was a Revenue Officer with the IRS for 5 years. We were instructed to determine the tax owed and then collect that amount--no more; no less.

Best wishes.
Taylor
How do you explain the letters I received that ignored things that were on my return? They took my Schedule D which included 51 trades but excluded 13 and erased the cost basis from the 51 trades and demanded tax and penalty on all 64 trades even though 51 were already paid. They took the 5498 I detailed in my returnfor the IRA rollover, ignored it and demanded tax and penalty on the IRA rollover. They ignored the interest I included on my return, claimed I didn't include it and demanded tax and penalties for it even though it was already paid. There's more but you hopefully get the point.

This all got sorted out in the end and they accepted the rightful $300 I owed them and not the $30,000 they initially demanded. If I paid what they demanded I would be out $27,700 that they never should have even asked for. If any business sent such a bill to someone the owners would go to jail for fraud, but since it's the IRS they can do whatever they like.

Heaven help you if you make a simple mistake on your tax return like I did; they will throw everything including the kitchen sink at you on a fishing expedition to get more money out of you. It sounds like this is exactly what is happening to the OP.
johnny72
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Re: IRS policy

Post by johnny72 »

umfundi wrote:
Taylor Larimore wrote:
The statement above is mistaken. I was a Revenue Officer with the IRS for 5 years. We were instructed to determine the tax owed and then collect that amount--no more; no less.

Best wishes.
Taylor
I would agree. However, if documentation is missing, the IRS will calculate your tax for you, assuming no deductions, no dependents, etc, etc. Add in interest and penalties and it quickly adds up.

Keith
It's unfortunately worse than that. They will ignore things you had documented on your return. It happened to me, it happened to two of my coworkers and it sounds like it's happening to the OP as well.
MarkNYC
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Re: Notice of Deficiency from IRS

Post by MarkNYC »

johnny72,

I can understand your frustration with receiving a letter from the IRS proposing $30,000 additional tax when you should only owe $300 additional, but I think some of your comments are off-base:
I've been through this exact thing and I have to say that the majority of advice here is completely wrong.
Did your case reach the stage where a Notice of Deficiency (aka 90-day letter) was issued, even though your were certain you owed zero additional tax? If not, then you did not go through the "exact thing" that the OP is facing.

They figure if you made a mistake for $100, they'll ask for $29,000 and maybe they'll get more than $100.
The notion that the IRS, knowing you owe an additional $100 of tax, would start out asking for $29,000 in hopes of getting more than the $100 that is properly due is just not true. The CP2000 notice that is sent out is a computer-generated letter that "proposes" a change to the tax return based on items of income that were reported to the IRS that the computer cannot detect as being properly listed on the tax return. The computer matching program is not flawless. Mistakes are common. Thus, the CP2000 notice asks the taxpayer to explain to what extent they agree or disagree with the proposed changes. The notice is NOT a bill, it is not an assessment, and it does not demand anything (in response to your comments at 1:58PM)
Here is what you do:

Write a letter expaining "I agree I messed the following things up." Then list them in a simple list and explain that you're writing a check to cover them. Then write, "I disagree regarding the following items". Then list them out in a simple list and why disagree with each one.
This is good advice for someone who has just received a CP2000 notice, but not for the specific situation the OP faces. He received the CP2000 notice almost 9 months ago. He has sent the IRS multiple responses to the original notice, explaining why no additional tax should be due. Those responses, for whatever reason, have been disregarded. Now that a Notice of Deficiency has been issued, the case has been transferred out of the AUR unit that issued the notice, so sending them yet another explanatory letter will accomplish nothing.

You understandably did not want to pay more tax than you properly owed. The OP firmly believes he owes nothing. Why would you advise the OP to send the IRS a check when he is certain that any mistakes on the original Schedule D would ultimately result in zero additional tax due when corrected?
umfundi
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Re: Notice of Deficiency from IRS

Post by umfundi »

Yes,

In my case, the letters were obviously machine generated using only data that had been electronically reported to the IRS. Since cost basis for sold investments was not included in such reports, they assumed it was zero.

Take the latest letter you have received from the IRS. Call the number on it. You may be on hold a long time (Monday is not a good day to call.) Tell them you received the letter, you will respond. They will log that you called. It seems to help if they know you are not ignoring them.

Note the office that the letter came from. It is often not the place where your returns should be filed. When you respond, include a copy of the notice you received, and send it to the correct address. A cover letter from a CPA who deals with the IRS seemed, in my case, to be very helpful.

A few weeks later, call them again. In my case, they gave me the exact schedule of when they would look at it, when they would respond, etc. (I forget, but there may be some sign-up security procedure that allows them to talk openly on the phone.)

If you did not owe anything originally, there is no penalty. Even if you were required to file and did not. Except, if you are owed a refund, you must file within three or four years. If you owe a payment, they have something like seven years to come after you.

Yes, the IRS letters read as though they are written by a robot. They are. But, the people I dealt with were always courteous and helpful. When it comes to the process for resolving issues like this, remember, they make the rules.

Keith
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JamesSFO
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Re: Notice of Deficiency from IRS

Post by JamesSFO »

MarkNYC wrote:The notion that the IRS, knowing you owe an additional $100 of tax, would start out asking for $29,000 in hopes of getting more than the $100 that is properly due is just not true. The CP2000 notice that is sent out is a computer-generated letter that "proposes" a change to the tax return based on items of income that were reported to the IRS that the computer cannot detect as being properly listed on the tax return. The computer matching program is not flawless. Mistakes are common. Thus, the CP2000 notice asks the taxpayer to explain to what extent they agree or disagree with the proposed changes. The notice is NOT a bill, it is not an assessment, and it does not demand anything (in response to your comments at 1:58PM)

Mark lots of awesome advice and I generally agree with you.

That said the CP2000 notices seem to start things out on the wrong foot, especially if you earnestly and honestly believe you did your taxes right and paid all that you owe.

I don't want to turn this into an IRS rant thread. Also the IRS could do better about hold times and/or offer call me back option so one does not need to sit on hold.
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Re: Notice of Deficiency from IRS

Post by jebmke »

JamesSFO wrote:
MarkNYC wrote:The notion that the IRS, knowing you owe an additional $100 of tax, would start out asking for $29,000 in hopes of getting more than the $100 that is properly due is just not true. The CP2000 notice that is sent out is a computer-generated letter that "proposes" a change to the tax return based on items of income that were reported to the IRS that the computer cannot detect as being properly listed on the tax return. The computer matching program is not flawless. Mistakes are common. Thus, the CP2000 notice asks the taxpayer to explain to what extent they agree or disagree with the proposed changes. The notice is NOT a bill, it is not an assessment, and it does not demand anything (in response to your comments at 1:58PM)

Mark lots of awesome advice and I generally agree with you.

That said the CP2000 notices seem to start things out on the wrong foot, especially if you earnestly and honestly believe you did your taxes right and paid all that you owe.

I don't want to turn this into an IRS rant thread. Also the IRS could do better about hold times and/or offer call me back option so one does not need to sit on hold.
JamesSFO wrote:
MarkNYC wrote:The notion that the IRS, knowing you owe an additional $100 of tax, would start out asking for $29,000 in hopes of getting more than the $100 that is properly due is just not true. The CP2000 notice that is sent out is a computer-generated letter that "proposes" a change to the tax return based on items of income that were reported to the IRS that the computer cannot detect as being properly listed on the tax return. The computer matching program is not flawless. Mistakes are common. Thus, the CP2000 notice asks the taxpayer to explain to what extent they agree or disagree with the proposed changes. The notice is NOT a bill, it is not an assessment, and it does not demand anything (in response to your comments at 1:58PM)

Mark lots of awesome advice and I generally agree with you.

That said the CP2000 notices seem to start things out on the wrong foot, especially if you earnestly and honestly believe you did your taxes right and paid all that you owe.

I don't want to turn this into an IRS rant thread. Also the IRS could do better about hold times and/or offer call me back option so one does not need to sit on hold.
They have been struggling with resources, in part due to shifting resources to fraud detection. It is frustrating trying to reach them but their numbers have been diminishing as their budget gets reduced.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: Notice of Deficiency from IRS

Post by johnny72 »

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jebmke
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Re: Notice of Deficiency from IRS

Post by jebmke »

I can't comment on your experience because I wasn't there. I prepare or review approximately 400 returns a year. I have had dozens of interactions with the service on the phone and through the mail -- including a 2 year drawn out process on my own 2009 return involving many letters, including an NOD. I have experienced various shortcomings including gaps in knowledge, poor handling of records and frequent hand-offs to different specialists in the service. But I have also gotten a lot of assistance from knowledgeable people to resolve taxpayer issues. I have never experienced anything that led me to believe that the people I was dealing with were deliberately targeting items for the purpose of generating revenue independent of the code.

On the contrary, my dealings with tax authorities in dozens of other countries were more likely to imply specific revenue generating behaviors. Note, these were all corporate tax matters so the focus may have been different for individuals.
When you discover that you are riding a dead horse, the best strategy is to dismount.
retiredjg
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Re: Notice of Deficiency from IRS

Post by retiredjg »

johnny72 wrote:There wasn't a single helpful minute during those two hours and I was literally hung up on three times.
I'm not a former IRS worker, but I am a former federal employee.

For a federal employee to hang up on you, you would have to exhibit some pretty bad behavior. Public servants are expected to put up with the usual difficulty of dealing with the public. They are not expected to put up with significant abuse.

If one person hung up on you, it could have been a poor employee. Since it happened 3 times, you might need to consider your contribution to why that happened.
SeattleCPA
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Re: Notice of Deficiency from IRS

Post by SeattleCPA »

I have some very specific advice, including comments about dealing with "Schedule D" issues, at my website. Here's the full article on how I deal with this CP2000 stuff for tax clients (something I regularly do):

http://www.stephenlnelson.com/tax-audits.htm

Note: If one handles these notices right, one really doesn't ever have much of a problem. But you have to be sure of your facts. And you have to realize you're in an examination (audit) situation and should prove your numbers with evidence, etc. I.e., don't just write a letter. Write a letter... and include any backup documentation... and then if there's more documentation that proves the documentation, include that, too.

BTW, at this stage, what I would think you do is get someone (like a CPA or EA) to take another run at this. I think the IRS still has practitioner priority lines where CPAs and EA can call on behalf of their clients and work out the CP2000 notice issues partly over the phone. (This line was the IRS's response, basically, to reports from the National Taxpayer Advocate's office that taxpayers were finding it impossible to resolve CP2000 notices.)
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Taylor Larimore
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Re: Notice of Deficiency from IRS

Post by Taylor Larimore »

Seattle CPA:

The link to your published article about how to handle a CP2000 letter is very helpful.

Thank you and best wishes.
Taylor
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SeattleCPA
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Re: Notice of Deficiency from IRS

Post by SeattleCPA »

Thank you Taylor. :beer
donall
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Re: Notice of Deficiency from IRS

Post by donall »

I've always found the IRS helpful when navigating the CP2000. The hardest part has always been reading and understanding the letter. Mistakes happen, as tax will be demanded if a dependent's social security number is off, etc. I've also had penalties removed over the phone.
sscritic
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Re: Notice of Deficiency from IRS

Post by sscritic »

donall wrote:I've always found the IRS helpful when navigating the CP2000. The hardest part has always been reading and understanding the letter. Mistakes happen, as tax will be demanded if a dependent's social security number is off, etc. I've also had penalties removed over the phone.
I mistyped my wife's SSN one time. Dumb, dumb, dumb (on my part, not the IRS's). The people who answered the phone when I called the number given have always been helpful.
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Re: Notice of Deficiency from IRS

Post by SurfCityBill »

SeattleCPA wrote:
Note: If one handles these notices right, one really doesn't ever have much of a problem. But you have to be sure of your facts. And you have to realize you're in an examination (audit) situation and should prove your numbers with evidence, etc. I.e., don't just write a letter. Write a letter... and include any backup documentation... and then if there's more documentation that proves the documentation, include that, too.
I recently received my first CP-2000. I believed my return was properly prepared and was expecting an expensive and protracted exchange with the IRS. In fact,
after I sent my response I posted a thread wondering what to expect next. To my delight, I recently received a "nothing owed, case closed" follow up letter from the IRS. I believe the facts stood for themselves, but the key to resolution was getting the IRS to understand those facts. SeattleCPA is correct. I basic letter is not going to work. The agent will probably just say "this doesn't make sense" or "anyone can say this, where's the beef?" You have to create a presentation of facts. In my case I detailed the money trail on a chart and backed that up with brokers trade confirmations, account statements, etc.

btw. The IRS wanted a response within 30 days. I provided one within 3 days. Whether that makes any difference I don't know, but it did move the process along as they in turn re-responded quickly as well.

-B
retiredjg
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Re: Notice of Deficiency from IRS

Post by retiredjg »

SeattleCPA wrote:I have some very specific advice, including comments about dealing with "Schedule D" issues, at my website. Here's the full article on how I deal with this CP2000 stuff for tax clients (something I regularly do):

http://www.stephenlnelson.com/tax-audits.htm
This letter of yours is full of good information and appears to be fair to all parties involved. Nice job!
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dandan14
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Re: Notice of Deficiency from IRS

Post by dandan14 »

Wow, thanks for the responses. Here is the update up to this point.
I've called the taxpayer advocate service several times. It tells you to leave your name and number and they will call you back. No call back yet.

I contacted 2 attorneys and one "IRS Consultant" (who worked at the IRS for 30 years). They all gave me the same advice. They said that this would never go to court over a $4000 dispute -- and that hiring one of them would likely not be worth it for me (meaning it would cost several thousand $). One of them pointed me to a pdf online that I printed out to file my case in tax court. I sent it in via certified mail yesterday.

The way that the attorneys and consultant all told me this would play out is that when they receive my case, it will be assigned to someone who has negotiating power. They will call me and try to work a deal. Honestly, paying anything above 0 would make me sick -- but I suppose I'll bend a little to make this go away.

As I've studied this, it is clear what happened:
On my original 2009 return, they didn't match the stock ticker symbols I reported with the abbreviations sent by the brokerage. For example, I reported IVV and the brokerage reported "Ishares S&P 500 Idx." So all of those reported by the brokerage showed as unreported by me. So they said I owed 12k.

Somewhere in my correspondence with them, I showed them how to match what I reported to what they had. However, when they entered into their system, they entered my cost basis where the "sale" price should have gone. (Had they entered the sales price, each one would have matched.) So that closed the gap a bit, but still very wrong. So now the total is $4k they say I owe.

In my court filing explanation, I went down each line item and used this format:
Amount reported to the IRS: x,xxx
Amount the IRS states I reported: y,yyy
Amount actually reported: x,xxx

I'll update when I find out something new.
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dandan14
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Re: Notice of Deficiency from IRS

Post by dandan14 »

sscritic wrote:Two off-the-wall thoughts:

Did you e-file? Is it possible your e-file service messed up and submitted numbers that were in error? (What you are looking at as "your return" is not what was submitted.)

Are you both looking at the same tax year? It doesn't seem likely that you are looking at different years, but I said this is an off-the-wall thought.
Nope...I filed on paper. It is definitely the same year...it is a clerical error on their part.
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dandan14
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Re: Notice of Deficiency from IRS

Post by dandan14 »

HueyLD wrote: Is there an IRS office near where you live? You can go to their local office and ask for a "transcript" of your tax return in question. And an employee there may be able to assist you in correcting the numbers in dispute. We had sent clients to local IRS office in the past and their issues were resolved by helpful IRS employees.
That's a good thought. It is about 2 hours away -- but might be worth a vacation day to go in person. If I don't hear back in a couple of weeks, I'll drive over there.
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Re: Notice of Deficiency from IRS

Post by dandan14 »

umfundi wrote:I had an IRS issue a few years ago, and I found a CPA. He sent a bunch of explanations with very dense cover letters. The IRS went away.

It only cost me $150 above his regular tax preparation fee to resolve this. And, to be sure, it was paperwork issues.

My point is, a letter of explanation from a CPA the IRS knows may be effective and much cheaper than a lawyer.

Keith
That's what I did on letter 1. The CPA and a few acquaintances told me they had received CP2000s before and were quickly resolved through the mail or phone. No such luck for me.
pshonore
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Re: Notice of Deficiency from IRS

Post by pshonore »

dandan14 wrote:Wow, thanks for the responses. Here is the update up to this point.
I've called the taxpayer advocate service several times. It tells you to leave your name and number and they will call you back. No call back yet.

I contacted 2 attorneys and one "IRS Consultant" (who worked at the IRS for 30 years). They all gave me the same advice. They said that this would never go to court over a $4000 dispute -- and that hiring one of them would likely not be worth it for me (meaning it would cost several thousand $). One of them pointed me to a pdf online that I printed out to file my case in tax court. I sent it in via certified mail yesterday.

The way that the attorneys and consultant all told me this would play out is that when they receive my case, it will be assigned to someone who has negotiating power. They will call me and try to work a deal. Honestly, paying anything above 0 would make me sick -- but I suppose I'll bend a little to make this go away.

As I've studied this, it is clear what happened:
On my original 2009 return, they didn't match the stock ticker symbols I reported with the abbreviations sent by the brokerage. For example, I reported IVV and the brokerage reported "Ishares S&P 500 Idx." So all of those reported by the brokerage showed as unreported by me. So they said I owed 12k.
I would be real surprised if the IRS tries to match on symbol, number of shares or anything else. Its just too difficult in a free form text field. If the gross proceeds reported by all Broker 1099B forms was less than or equal to the gross proceeds on Your Sched D, probably no CP 2000 letter would have been issued.
umfundi
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Re: Notice of Deficiency from IRS

Post by umfundi »

dandan14 wrote:Wow, thanks for the responses. Here is the update up to this point.
I've called the taxpayer advocate service several times. It tells you to leave your name and number and they will call you back. No call back yet.

I contacted 2 attorneys and one "IRS Consultant" (who worked at the IRS for 30 years). They all gave me the same advice. They said that this would never go to court over a $4000 dispute -- and that hiring one of them would likely not be worth it for me (meaning it would cost several thousand $). One of them pointed me to a pdf online that I printed out to file my case in tax court. I sent it in via certified mail yesterday.

The way that the attorneys and consultant all told me this would play out is that when they receive my case, it will be assigned to someone who has negotiating power. They will call me and try to work a deal. Honestly, paying anything above 0 would make me sick -- but I suppose I'll bend a little to make this go away.

As I've studied this, it is clear what happened:
On my original 2009 return, they didn't match the stock ticker symbols I reported with the abbreviations sent by the brokerage. For example, I reported IVV and the brokerage reported "Ishares S&P 500 Idx." So all of those reported by the brokerage showed as unreported by me. So they said I owed 12k.

Somewhere in my correspondence with them, I showed them how to match what I reported to what they had. However, when they entered into their system, they entered my cost basis where the "sale" price should have gone. (Had they entered the sales price, each one would have matched.) So that closed the gap a bit, but still very wrong. So now the total is $4k they say I owe.

In my court filing explanation, I went down each line item and used this format:
Amount reported to the IRS: x,xxx
Amount the IRS states I reported: y,yyy
Amount actually reported: x,xxx

I'll update when I find out something new.
Wow. Good luck.

Have you considered filing an amended return with the information as the IRS has it?

Keith
Déjà Vu is not a prediction
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dandan14
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Re: Notice of Deficiency from IRS

Post by dandan14 »

umfundi wrote:
Have you considered filing an amended return with the information as the IRS has it?

Keith
Yes....I filed a 1040x. I think that is when it changed from owing 12k to 4k. Of course it is hard to know...because they are slow to process things...so I'm not sure what response has triggered what.
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Re: Notice of Deficiency from IRS

Post by dandan14 »

market timer wrote:I've found the IRS surprisingly helpful in resolving these sorts of issues.
Well, I've had high hopes when talking to them on the phone. A couple of the reps have said it looks like an error and "let's just resubmit this" saying it would get fixed. A month later, I would get another notice.
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Re: Notice of Deficiency from IRS

Post by sscritic »

dandan14 wrote: Yes....I filed a 1040x. I think that is when it changed from owing 12k to 4k. Of course it is hard to know...because they are slow to process things...so I'm not sure what response has triggered what.
Did they ask you to file a 1040x? Usually the instructions say not to file a 1040x. As you say, they are slow to process things, so your 1040x could have just confused things more as they are no longer looking at the original return that you tried to explain.
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Re: Notice of Deficiency from IRS

Post by dandan14 »

sscritic wrote:
dandan14 wrote: Yes....I filed a 1040x. I think that is when it changed from owing 12k to 4k. Of course it is hard to know...because they are slow to process things...so I'm not sure what response has triggered what.
Did they ask you to file a 1040x? Usually the instructions say not to file a 1040x. As you say, they are slow to process things, so your 1040x could have just confused things more as they are no longer looking at the original return that you tried to explain.

Yeah...my cpa did that. I pointed out that it said not to. I've wondered if that confused things.
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Re: Notice of Deficiency from IRS

Post by retiredjg »

dandan14 wrote:
sscritic wrote:
dandan14 wrote: Yes....I filed a 1040x. I think that is when it changed from owing 12k to 4k. Of course it is hard to know...because they are slow to process things...so I'm not sure what response has triggered what.
Did they ask you to file a 1040x? Usually the instructions say not to file a 1040x. As you say, they are slow to process things, so your 1040x could have just confused things more as they are no longer looking at the original return that you tried to explain.
Yeah...my cpa did that. I pointed out that it said not to. I've wondered if that confused things.
I'm wondering the same thing. Could be 2 different "desks" in different locations working on it, but not together. :(
umfundi
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Re: Notice of Deficiency from IRS

Post by umfundi »

retiredjg wrote:
dandan14 wrote:
sscritic wrote:
dandan14 wrote: Yes....I filed a 1040x. I think that is when it changed from owing 12k to 4k. Of course it is hard to know...because they are slow to process things...so I'm not sure what response has triggered what.
Did they ask you to file a 1040x? Usually the instructions say not to file a 1040x. As you say, they are slow to process things, so your 1040x could have just confused things more as they are no longer looking at the original return that you tried to explain.
Yeah...my cpa did that. I pointed out that it said not to. I've wondered if that confused things.
I'm wondering the same thing. Could be 2 different "desks" in different locations working on it, but not together. :(
Uplist somewhere, I recommended responding only to the last letter, calling the phone number in that letter, and sending all correspondence with a copy of that letter to the stated address.

According to my CPA, it is incredibly easy to get the wires crossed.

Keith
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dandan14
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Re: Notice of Deficiency from IRS

Post by dandan14 »

umfundi wrote: Uplist somewhere, I recommended responding only to the last letter, calling the phone number in that letter, and sending all correspondence with a copy of that letter to the stated address.

Keith
Yeah....I wish I could go back and not file the 1040X. At this point, the letter says if I want to appeal, i have to file the court petition. I did that yesterday.
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Re: Notice of Deficiency from IRS

Post by MarkNYC »

dandan14 wrote:Wow, thanks for the responses. Here is the update up to this point.
I've called the taxpayer advocate service several times. It tells you to leave your name and number and they will call you back. No call back yet...

One of them pointed me to a pdf online that I printed out to file my case in tax court. I sent it in via certified mail yesterday...

The way that the attorneys and consultant all told me this would play out is that when they receive my case, it will be assigned to someone who has negotiating power. They will call me and try to work a deal. Honestly, paying anything above 0 would make me sick -- but I suppose I'll bend a little to make this go away.

As I've studied this, it is clear what happened:
On my original 2009 return, they didn't match the stock ticker symbols I reported with the abbreviations sent by the brokerage. For example, I reported IVV and the brokerage reported "Ishares S&P 500 Idx." So all of those reported by the brokerage showed as unreported by me. So they said I owed 12k.
Dan,

A few comments on your situation, some of which may not help you at this point, but may help others in the future:

1. When originating contact with the Taxpayer Advocate office, I would skip the phone call. Instead, fill out Form 911 (appropriately numbered) and mail or fax it to your local TA office. If you first contact them by phone, they will ask you to submit a written summary of your situation anyway, so I would just bypass the phone call.

2. Now that a Deficiency Notice was issued and you responded by filing a Tax Court Petition, I suggest you not drive 2 hours to a local IRS office to try to resolve the case. When a local agent sees where the case now stands, you likely will be told it is out of their hands. When an agent ultimately contacts you in response to your Petition, you should be able to resolve the case in your favor without going to Court. Whether you reported all your security sales and owe any additonal tax is a question of fact and there should be no need for you to negotiate or "work a deal." But don't expect a response too soon. With the last Petition that I had involvement (last year), it took 8 months for an agent to make contact in response to the Petition. Since your case is less than $50,000 you may have requested on your Petition that yours be handled as a "small tax case", and maybe that department moves more quickly. Maybe.

3. When a CP2000 or other IRS notice states "do not file an amended return in response to this notice," ignoring that instruction will almost certainly slow down and complicate getting the issue resolved. An amended return should only be filed if the notice is at least partially correct and the proposed changes trigger additional tax issues not mentioned in the notice but relevant to an accurate return.

4. Taxpayers should remember that much of the information on their tax return has been reported to the IRS, so the tax return should be prepared in a way that minimizes the chances of an IRS computer mismatch. Although the Schedule D instructions allow the use of ticker symbols rather than the security names, I think using symbols is asking for trouble, as your situation clearly demonstrates.
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Re: Notice of Deficiency from IRS

Post by dandan14 »

MarkNYC wrote:Since your case is less than $50,000 you may have requested on your Petition that yours be handled as a "small tax case", and maybe that department moves more quickly. Maybe.
Actually I didn't choose the small tax case option because it said there was no appeal process. I hope that was the right call.
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Re: Notice of Deficiency from IRS

Post by dandan14 »

Ok, here is the next chapter.
I filed the petition to the US Tax Court, and they have responded.

They "Admit the first three sentences" of my petition which read
"The IRS notice lists 16 schedule-D line items in which the IRS states that the amount reported by others does
not match the amount reported on my return (1040X, December 1, 2011). However, in each case, the amount
reported on the 1040X does match the amount reported by others. There is no more than $1 of discrepancy
(caused by rounding) on any individual line item."

When I read that, I thought great, they are basically saying they have looked at it and determined that I am correct. But then it goes on to say:

"WHEREFORE, it is prayed that the relief sought in the petition be denied and that Respondent's determination, as set
forth in the notice of deficiency and as provided above, be in all respects approved."

I have no idea what to do at this point.

Does anyone know what my next step is? I think if I were to go in front of the judge, not only could I prove that I am right, but it seems like they have admitted that in their response.
johnny72
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Re: Notice of Deficiency from IRS

Post by johnny72 »

God help us all with this organization. I just received notice that I may be put under backup withholding because they say I owe them $17.04. This is down from the $30,000 or so they originally said I owed. At this point I'm just going to pay it and hope for the best.

No idea how to help you; just wanted to let you know you're not the only one. From what I'm living and seeing the IRS is becoming more aggressive.
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theduke
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Re: Notice of Deficiency from IRS

Post by theduke »

It may be time to call your congressman and see if he/she could help.
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