IRS CP2000 letter resulting in IRS mistake

[AZ-Tax]

Upon talking to an IRS agent yesterday about my clients CP2000 letter, I was under the impression from what the IRS told me, the IRS can make an allegation of under reported income without proof. Is this correct?

Example: I had a client receive a CP2000 about a month ago about under reporting some interest income. The interest income was reported on Sch B and 100% of the amount flowed thru to line 8a form 1040. The IRS caved in and the case was closed with $0 balance.

Do most tax preparers who prepared the originally tax return, charge their client to resolve their IRS problem which ends up being the IRS’s mistake? If so how much?

[MLINDER42]

Cp 2000

The only time I charge is if the client did not give me the information to begin with. Under your scenario I would not have charged anything.

[BOB W]

Upon talking to an IRS agent yesterday about my clients CP2000 letter, I was under the impression from what the IRS told me, the IRS can make an allegation of under reported income without proof. Is this correct?

Example: I had a client receive a CP2000 about a month ago about under reporting some interest income. The interest income was reported on Sch B and 100% of the amount flowed thru to line 8a form 1040. The IRS caved in and the case was closed with $0 balance.

Do most tax preparers who prepared the originally tax return, charge their client to resolve their IRS problem which ends up being the IRS’s mistake? If so how much?

I don't charge usually. It just seems to be something I SHOULD do. But that is not to say that I don't raise their fees from then on. If I have to spend an hour fixing the problem I will add $10 in addition to any other increases. That $10 becomes permanent forever.

[DaveO]

We used to fix these things for free. In the last couple of years the number of these erroneous notices has increased to the point that we are charging for it. At least $25 - $50 just to set some value on our time.

[Nashville]

I do charge

as the situation dictates:

1) Full fee if the result of client not reporting to me all of his income or mistating critical factual information.

2) Reduced fee if IRS has screwed up something. Not my fault or the client's fault.

3) No fee if problem was result of my error, or resonably could be perceived as such.

[Kram BergGold]

Why I don't charge

I want my clients to contact me every time they get a letter from SAM or one of his buddies. I fear that charging clients for my time would discourage them from contacting me. My compensation for this type of work is kind of built into the tax prep fee.

[Uncle Sam]

IRS Mistakes

The only time I charge clients for additional time spent with a prior year tax return, such as CP200 notice, is if the mistake or error or change involved was caused by them not providing me with accurate information.
If I made the mistake, or if IRS makes the mistake - I don't charge.

[Nashville]

Didn't Used To

In years gone by, I didn't charge for IRS mistakes, for much the same reason -- I wanted to be contacted so I would know what was going on, and if clients thought they had to pay me, then they wouldn't inform me of a CP-2000.

However, in recent years, these CP-2000s have become so numerous that I end up working many hours in the summer. Each one requires a letter (at a minimum), and some of them require a POA and numerous contacts back and forth. I have a small clientele, but even 8-10 of these things can easily result in 90-100 hours work. Not to mention that you had better send your correspondence by certified mail or it only gets worse.

I am not willing to continue working for free on account of frequent IRS bungling my clients' accounts. The obvious choices are to charge for this work when it happens, or build it in to your overall billing rate so everyone has to pay for it. In my situation, I believe if the customer knows I'm working on something, he finds it more palatable to pay than to put up with ever-burgeoning fee increases every year.

[joanmcq]

send your correspondence by fax, not mail. keep the transmittal letter. Much better than mail, certified or otherwise.

[erchess]

My Policy

I get paid for everything I do for a client unless I feel that my error or an error in some tool I used contributed at least in part to the situation. What is below assumes that I feel that I did not cause the situations.

If I review a notice and recommend that the client pay all of the additional tax asked for, I charge $50 for the first up to two hours of my time and $25 an hour after that. If they want an installment agreement I don't charge extra for doing it.

If the client and I decide together to contest some or all of what is asked for then according to my definition we have an "audit" unless of course we have an "oic". For a mail audit I charge $300 for the first up to six rounds of correspondence and then $75 per round. This fee structure includes a POA and my doing all the "sending in" and keeping proof. For an in person Audit the fee is $200 to prepare for the audit and $100 for each Face to Face Meeting and $50 for each letter or phone call. If the client or I decide to do an OIC my fee is $1K but if we have tried other things first the OIC fee is reduced up to $500 by the amount of previous fees.

I do sympathize with clients who have to pay me because the Taxing Agency either made a mistake or worse, made an accusation it knew it could not prove. That is why I keep proposing penalties for the Taxing Agencies when they ask for more than is justified. I realize that basically the Agencies would have to enlarge their staffs and collection of info to the point that they could do all the returns and those of us who did not go to work for them would be reduced to checking their work for clients.

[bertrans]

Upon talking to an IRS agent yesterday about my clients CP2000 letter, I was under the impression from what the IRS told me, the IRS can make an allegation of under reported income without proof. Is this correct?

Example: I had a client receive a CP2000 about a month ago about under reporting some interest income. The interest income was reported on Sch B and 100% of the amount flowed thru to line 8a form 1040. The IRS caved in and the case was closed with $0 balance.

Do most tax preparers who prepared the originally tax return, charge their client to resolve their IRS problem which ends up being the IRS’s mistake? If so how much?

If an IRS spokesperson told you that the IRS can 'allege'/adduce unreported income without proof, you were told incorrect information. At most, one could have income 'imputed' in the course of a face to face audit, and as the result of facts and circumstances. That is not going to happen with a CP-2000: all sources of income reported to the IRS for the TP MUST be included on that CP notice.

[dyne]

Assuming Income

I know for a FACT that some instructors at IRS teaching seminars have been know to tell the auditors
and agents that they can ASSUME a certain amount of unreported income when they
believe that such unreported income exists. This is a bluff and it is done to get the
taxpayer to admit to a specific amount. It would be impossible to access a tax in such
a case unless the taxpayers admits to it.

[Gretel]

I also charge depending on situation.

Client's fault - my hourly rate
My fault - nothing
everything else - up to about 1 hour is free, after that my hourly rate, exceptions apply

I just increased my rate to $65.