My fault or someone else's?

[jimenright]

My client got a CP2000 notice. It was generated because the amounts claimed on 1040 schedule D (elect filed) did not match the 1099B. There was a co-owner on the 1099B. Both owners were listed as account owners but only my client's ssn on the 1099B. The amounts on the 1099 were divided 50/50 on each owners sched D. The automated system obviously did not recognize there were two owners thus the CP 2000 was generated. I answered to CP2000 for my client explaining the situation and I expect it will be accepted.

I am wondering if I should have included an electronic note with the return explaining the situation and if the CP2000 would not have been generated if I had.

I am wondering if the broker should have generated two separate 1099Bs for the account.

I am wondering if I should charge my client for the three hours I spent dealing with this or if it is my fault and I should take care of it for free.

What do you think?

[smithtax]

My client got a CP2000 notice. It was generated because the amounts claimed on 1040 schedule D (elect filed) did not match the 1099B. There was a co-owner on the 1099B. Both owners were listed as account owners but only my client's ssn on the 1099B. The amounts on the 1099 were divided 50/50 on each owners sched D. The automated system obviously did not recognize there were two owners thus the CP 2000 was generated. I answered to CP2000 for my client explaining the situation and I expect it will be accepted.

I am wondering if I should have included an electronic note with the return explaining the situation and if the CP2000 would not have been generated if I had.

I doubt an electronic note would have avoided the computer matching program.

I am wondering if the broker should have generated two separate 1099Bs for the account.

I would imagine the broker is only required to generate a 1099 for the SSN on the account; I've never seen separate statements for the same account, although I don't know for certain if the account could be divided that way.

I am wondering if I should charge my client for the three hours I spent dealing with this or if it is my fault and I should take care of it for free.

If you spent 3 hrs 'dealing with this' I can only assume there were a number of transactions and you attended to each one individually in your response to the CP2000? It is your call as to whether or not you feel responsible for the mismatch. I have had no-charge 'learning experiences' of my own in my practice. In those situations the client is often quite appreciative which lends goodwill (referrals).

What do you think?

I would have reported the entire gross proceeds on my client's return and simply increased the basis for the difference IF you could support the taxpayer's contention that the account is indeed owned jointly. I would also make good notes for my file and have the client sign that portion of my workpapers.

[JohnH]

My client got a CP2000 notice. It was generated because the amounts claimed on 1040 schedule D (elect filed) did not match the 1099B. There was a co-owner on the 1099B. Both owners were listed as account owners but only my client's ssn on the 1099B. The amounts on the 1099 were divided 50/50 on each owners sched D. The automated system obviously did not recognize there were two owners thus the CP 2000 was generated. I answered to CP2000 for my client explaining the situation and I expect it will be accepted.

I am wondering if I should have included an electronic note with the return explaining the situation and if the CP2000 would not have been generated if I had.

I am wondering if the broker should have generated two separate 1099Bs for the account.

I am wondering if I should charge my client for the three hours I spent dealing with this or if it is my fault and I should take care of it for free.

What do you think?

Theres's no right or wrong answer to your question about the billing. It depends upon the client's sense of fairness, which in turn should affect how interested you are in keeping the client's business. If this is going to be an ongoing issue, then you will need to charge more for preparing their returns in the future. You could easily build the 3 hours into those future bills, perhaps spreading it out over 2-3 years.

I'd probably explain to the client that this new complexity will cause their bills to increase in the future. If they understand, then we can deal with it as described above.

If they disagree with me or question why they should pay more in the future, I'd probably conclude that they don't have a basic sense of fairness. In that case I'd throw the issue on the table by billing them for the 3 hours. If they pay and come back, we can proceed normally. If they pay and don't come back, good riddance. If they don't pay and don't come back, at least I don't have to contend with their nonsense in the future.

[S T]

Above responses are good! - This is not an easy reporting issue, but keep in mind with the new reporting to IRS from the Financial Institutions - it is a potential ongoing issue for receiving "non-matching" CP 2000 notices.

Seems like maybe the taxpayer (your client) should either consider investigating options from the Financial Institution reporting the 1099B and/or separating out the Account to individual SSN#

Good Luck!

Sandy

[FEDUKE404]

Changing the facts

I would have reported the entire gross proceeds on my client's return and simply increased the basis for the difference IF you could support the taxpayer's contention that the account is indeed owned jointly. I would also make good notes for my file and have the client sign that portion of my workpapers.

I would likely have a rather difficult time handling things this way, as you would be apparently "reporting" what is not a factual situation.

A more preferable way would be (somehow, now that Form 8949 has arrived) showing half the proceeds and half the cost basis (if the facts truly support that) for your client. You might even show two sales (half+half) with the "other person's" half raised to match the sales proceeds. A suitable explanation of your action should be included in the comments section available for efiled returns. That might keep the CP2000 folks at bay?

It's somewhat like a nominee distribution, but that normally is only for interest/dividends. You might want to dig around the Sch D instructions for a definitive answer.


FE

[jimenright]

More info and conclusion

The tax year involved was 2010 and the 2nd owner of the account was also my client.

Pub 550 2010 pg 68 says that I should have included an explanatory note with the return and that my client as a nominee was required to issue a 1099B and form 1096 reporting the assignment of income to the other owner.

Conclusion: I did not do a proper job of reporting. It was my fault and I will not charge my client for my mistake.

Thanks to those who responded. You got me going in the right direction.

[JohnH]

'That's very profesisonal of you and I think you made the right call.
Good learning experience and good client relations with both clients.
What some people call "finding fault" I think is better described as "accepting responsibility".

But what do you plan to do going forward? Even if you follow the instructions for handling it, you're likely to find yourself dealing with CP2000's no matter what you do. Plus there's extra work involved in preparing the returns just to comply in the first place. Now that you know the returns require extra work are you going to factor that into your fees in the future? Personally, I think you should.

[Kram BergGold]

Agree and Disagree

I agree you should not have charged client.
Attaching an explanation will do not good. IRS does not look at explanation. When I have this situation I show 50% of sales with cost basis to show client's correct gain or loss. Then I show the other 50% of gross with the exact same cost basis to make it zero out. This has always worked.

[FEDUKE404]

Agreed

I agree you should not have charged client.
Attaching an explanation will do not good. IRS does not look at explanation. When I have this situation I show 50% of sales with cost basis to show client's correct gain or loss. Then I show the other 50% of gross with the exact same cost basis to make it zero out. This has always worked.

That sounds like another reasonable solution to the problem.

What you DON'T want to do is get cute and report only "your client's share" when there is a Form 1099 rattling around out there with something else on it. Failure to report that "income" virtually guarantees a CP2000 notice will arrive.

Another helpful hint: Always ask to see every Form 1099.....always!!

And I agree with JohnH also. Generally speaking, clients will be understanding of an honest explanation of a preparer misstep. You should "repair" the errors without additional cost, with a slight escape if the client did not provide you with the full facts/documents up front. And, in succeeding years, you DO have to factor in more than merely entering the numbers.

FE

[jimenright]

Not in accord with pub 550

I agree you should not have charged client.
Attaching an explanation will do not good. IRS does not look at explanation. When I have this situation I show 50% of sales with cost basis to show client's correct gain or loss. Then I show the other 50% of gross with the exact same cost basis to make it zero out. This has always worked.

Reporting the 1099B info as you have suggested would not be following the method required by pub 550. It would probably have avoided the CP2000 but avoided it by fooling the system by entering a false sale with a false basis. It also does not address the problem of a 1099B for the second half owner reporting the income for the second party. I think I would rather deal with the CP2000 than use this method.

[geekgirldany]

Seems like maybe the taxpayer (your client) should either consider investigating options from the Financial Institution reporting the 1099B and/or separating out the Account to individual SSN#

Good Luck!

Sandy

I would talk to them about getting the account split into two separate accounts with the appropriate SSNs. Doing that would avoid many problems and I do not know of any reason why it could not be done.

[taxxcpa]

Increasing cost to get right gain/loss

Since the IRS now gets both the sales amount AND the cost on Form 8949, it looks like the best you could do is enter both the sale and reported cost as shown on the 1099B, then enter an adjustment in the adjustment column on Form 8949.

[smithtax]

[QUOTE=FEDUKE404;144493]I would likely have a rather difficult time handling things this way, as you would be apparently "reporting" what is not a factual situation.

A more preferable way would be (somehow, now that Form 8949 has arrived) showing half the proceeds and half the cost basis (if the facts truly support that) for your client.

Isn't that what OP did? And didn't he receive a CP2000?

You might even show two sales (half+half) with the "other person's" half raised to match the sales proceeds.

This method will still generate a CP2000.

The computer matching program which initiates Notice CP2000 is designed to compare gross receipts of each singular transaction presented on the return to what was reported on Form 1099B. If you separate or otherwise breakout the sales amount, there exists a strong possibility of a computer mismatch.

An electronic statement attached to the return explaining the underreporting will almost certainly be viewed by a tax examiner AFTER the mismatch. No doubt the statement could conceivably eliminate Notice CP2000, but why subject your client's return to an unnecessary, cursory review?

On a side note, the IRS has recently implemented a new AUR program for corporations (1120). Notice CP2030 will be generated as a result.

The IRS is still looking at 1120S and Schedule K-1 (1040) matchups.

[JohnH]

That is correct concerning the new AUR program. I recently handled a 2030 for a corporation which had included amounts reported to it on a 1099-Misc in its total receipts on their CY 2010 return. Don't know why the payer sent a 1099-Misc to a corp in the first place, but they did.

IRS sent a bill for additional tax which simply added the 1099-Misc amount to the corporation's reported income by adding it on line 10 - "Other Income". We responded with an explanation that the income was already included in reported receipts, and I attached a copy of the "Income" section of the 1120 showing the original presentation and then a "revised" presentation with the 1099-Misc amount broken out and moved to line 10. But I told the client we should probably expect more hassle before this is resolved.

[FEDUKE404]

Only some cost basis is provided to IRS

Since the IRS now gets both the sales amount AND the cost on Form 8949, it looks like the best you could do is enter both the sale and reported cost as shown on the 1099B, then enter an adjustment in the adjustment column on Form 8949.

The IRS only receives the cost basis for (most) PURCHASES made starting in 2011. Anything obtained prior to that time would not have any cost basis information reported to the IRS.

Back to square one, unless assets described were purchased during 2011. (And even then, I doubt if much would have changed in this example....)

geekgirldany has offered the simplest way to resolve the problem, assuming the per cent (50:50) is appropriate. Split the assets, open new account(s), and move onward.

FWIW: I am not aware of any brokerage firm that issues more than a single Form 1099-B (or -INT or -DIV) for the same account, regardless of the ownership. This comment ("the automated system obviously did not recognize there were two owners thus the CP 2000 was generated") from the original post just won't carry any water. It is likely that no human hands ever touched the CP2000 notice...the computer just saw "unreported income" for the person whose SSN was on the tax document and that set everything in motion.

FE