CP 2000 Question

[Kram BergGold]

Why

Client has been 100% self employed for decades. In 2012 she started a very part time teaching job. It never occured to her that this income was different than the other incomes she received. When she got the W-2, the bell still did not go off and she treated it like a 1099. As a result she did not show it to me.

[Roland Slugg]

Well, after about fifteen replies, we now know WHY some W-2 income was reported on the T/P's Schedule C. It wasn't "statutory employee" income ... it was from a separate part-time job. The OP also mentioned that the net W-2 income was reported on Schedule C ... not the gross W-2 income. The difference between gross and net would be the total of all withholdings.

I don't know if this can all be straightened out and corrected via a reply to the CP-2000 letter, or if a 1040X will need to be filed. Gross income will go up, but SE tax will go down. If there was FWHT, that will need to be taken into account, of course, and if the T/P lives in a state with an income tax, an amended/corrected state return will probably be necessary as well.

I would be inclined to prepare a 1040X to straighten everything out, despite the admonition in the CP-2000 letter not to do so. However, some of the approaches recommended by others, above, might work just as well ... or better ... and they seem to have been offered by people with more experience in dealing with such matters than I have.

[Lion]

The following came from CT's IRS Liaison:

Responding to IRS notices

How to respond to a CP2000 notice -- The IRS issues over 4.5 million CP2000s every year, and the feedback I receive from many practitioners I deal with is that they do not charge their clients for dealing with these notices. As a result, practitioners want to deal with these notices as quickly and effectively as they can. The tips in this handout are directly from my contacts within the Automated Under Reporter (AUR) Unit which is the unit that deals with CP2000 notices. Following these tips will go a long way to quickly resolving CP2000 notices.

When responding to IRS notices:

• Do not group or net amounts

• Include explanation of any incorrect payer data

• Report income on correct line

• Include all relevant back-up schedules

• Use the envelope enclosed with the notice to respond to the notice.

• Staple the bar-coded notice response page to the top of the response.

• Staple the entire notice response package together.

• On each page of the response, write the name control, the whole SSN, the tax year.

• Number the pages of the response

• File amended returns used to respond to a notice with the notice response.*

• Request that the AUR unit call you if questions arise while reviewing a notice response.

• Include a contact phone number and best days and times to call in the notice response.

*When filing a 1040X with a CP2000 notice response, make sure to address penalties. If penalties are not addressed in the response, the 1040X will NOT be processed by the IRS. Instead your client will be issued an updated CP2000 based on the 1040X, but penalties will be assessed. If requesting penalty abatement, you must provide a reasonable cause argument in writing on either the CP2000 response form or in the 1040X explanation of changes.

[OtisMozzetti]

Why I provide a 1040X, unless client agrees with all or none of it.

Somewhere along the line, I believe that I found in the IRS instructions within the CP2000 letter that the issuing office (in our case typically Fresno or Ogden) expects to have a 1040X with it labeled as "CP2000". It put that at the the top of the 1040X, not in any IRS processing area at the upper right, with a circle around it.

Often the taxpayer agrees with some, but not all, of the proposed changes. That box needs to be checked on the "Response Form". That is when, as I see it, the 1040X, is appropriate.