CP12 after use of optional SE method

[Gretel]

My client just got this letter and the IRS contentions are at least partially wrong.

Client had $2,000 in SE income and choose to use optional SE method (not farm). IRS has zero for SE taxes, which is wrong not matter if they used $2,000 or $4,480. Therefor they also got the EIC wrong by a little bit. Easy enough to send them the worksheets to straighten this out.

Here is my real question. My software has calculated the MWPC using $2,000. Instructions for form M say use worksheet. On line 2 of this worksheet I do not see anything to use optional SE amount. It seems to be available only to farmers (Line 2d). However, IRS has adjusted MWPC to use same amount as used for EIC. TTB says use the same amount as you use for EIC, which should be then $4,480 minus SE.

I am not trusting the IRS, nor do I trust their instructions, nor do I trust my software. Has anyone an opinion? I am tending to send them all my software worksheets and go from there.

[Jiggers]

Did you client have a deduction for self-employed health insurance? This is deducted on page 1 of the 1040.

It is also deducted from the SE income on the Schedule SE, though there isn't a line for that amount.

I had a client with a profit on the farm and no SE tax. And the client got the MWP credit.

[Corduroy Frog]

What Year?

Gretel, what year is involved with this?

If it is 2010, remember Jiggers possible explanation that SEHI deduction is counted as a deduction against self-employment income for 2010 but NOT for 2009. Cherish this tax break for the SEHI, it was not available BEFORE 2010 and won't be available AFTER 2010.

Also look for other possible sources of self-employment, such as a Sch F, a second Sch C, compensation not having SS withdrawn, etc.

[Gretel]

Thanks, guys. No, health insurance or any other issues other than EIC and WMPC. Only income is from his business and there is really no explanation why IRS has zero for SE tax. It's for 2010.

[bgiez]

I got a CP12 on my own tax return and I had to order a transcript to see exactly where the IRS made changes, as the CP12 was not explicit. It had to do with calculating the SE tax, however my experience included the SEHID. Try ordering the transcript. You will see how the e-filed information was received by the IRS and where exactly they changed it.

[Kram BergGold]

IRS and 2010SE

I saw a blurb, maybe from someting sent out by NATP that IRS was having some somputer software malfunction issues with cetain SE situations. Trust your software.

[Janice Terry]

CP12's Received

Had two different clients call me yesterday to say they received a CP12 from IRS claiming their income was less than what we had claimed. In both cases, it was different by their personal property tax amount. I've notified my tax software people, but haven't heard back. Is it my tax software? Is it IRS software? I'll be calling IRS today to see what's up. Anyone else had this problem?

[Gretel]

I know what IRS did. I also know that they are wrong in two instances: SE tax and EIC resulted thereof. I also know that the special SE situation where IRS does miscalculation because of health insurance does not apply to my client.

The only thing I do not know is why the instruction from the IRS for calculating the MWPC is a situation where optional SE (not farm) is involved differs from what they claim in their notice.

I will mail my worksheets and will post again once I know what the IRS then says.

[Jiggers]

Property tax deduction?

Had two different clients call me yesterday to say they received a CP12 from IRS claiming their income was less than what we had claimed. In both cases, it was different by their personal property tax amount. I've notified my tax software people, but haven't heard back. Is it my tax software? Is it IRS software? I'll be calling IRS today to see what's up. Anyone else had this problem?

This property tax was deducted on Schedule A and the IRS is adjusting it?