Cp2000

[Grace]

I would appreciate any thoughts or input you might have with respect to responding to a CP2000. Fortunately, I have had little experience with these.

First, and foremost, I don not want to amend this tax return. Not only because the IRS doesn't want an amended return in response to a CP2000, but also, and more importantly, because I did not prepare the original return and I don't want the liability associated with other items on this return for which I have no supporting back-up for. I just want to draft a response that is specific to the CP2000 inquiry and not open up a can of worms with respect to the rest of the return.

CP2000 proposed changes involve stock transactions reported on a 1099B and a W-2 that was left off the original return.

These two items are connected as they involve the release of restricted stock units (RSUs). And, of course, the IRS used a zero cost basis.

2 transactions on the 1099B involve the sale of shares to cover the taxes associated with the vesting of these RSUs for the tax year in question.

The other transaction involves the sale of shares the taxpayer had held onto from a couple of prior years. The ones left over after some were sold to cover the taxes associated with the vesting of shares from those prior years.

After having spent a considerable amount of time reviewing a voluminous amount of documents, I was able to establish the cost basis for all three of these transactions. However, it was no simple task as it involved stock-splits and partial amounts of W-2 income. My question is: In my response to the IRS, do I have to provide my back-up documentation with respect to how the cost basis was ascertained or can I just provide the cost basis for the stock transactions in question?

The third transaction was reported incorrectly on the original return. (a) The sale was reported as Short Term when it should be Long Term and (b) while the cost basis was reported correctly, the sales proceeds that were reported are incorrect. My question: Can/Should I submit a "revised" F-8949/Sch. D with my response in order to correct these items as well as to address the other two transactions? Or photocopy the forms from the original return and make the corrections and additions on them?

Lastly, with respect to the proposed changes, the IRS calculated a "substantial tax understatement penalty," a "failure to file penalty," and, of course, "interest." My question: Should my response include a request for an abatement of the "penalties" ( I know interest isn't abated) OR should I wait for the IRS's response and if it still includes these items, send another letter requesting the abatement.

Thanks in advance for any input or suggestions.

Grace

[Super Mom]

I would appreciate any thoughts or input you might have with respect to responding to a CP2000. Fortunately, I have had little experience with these.

First, and foremost, I don not want to amend this tax return. Not only because the IRS doesn't want an amended return in response to a CP2000, but also, and more importantly, because I did not prepare the original return and I don't want the liability associated with other items on this return for which I have no supporting back-up for. I just want to draft a response that is specific to the CP2000 inquiry and not open up a can of worms with respect to the rest of the return.

CP2000 proposed changes involve stock transactions reported on a 1099B and a W-2 that was left off the original return.

These two items are connected as they involve the release of restricted stock units (RSUs). And, of course, the IRS used a zero cost basis.

2 transactions on the 1099B involve the sale of shares to cover the taxes associated with the vesting of these RSUs for the tax year in question.

The other transaction involves the sale of shares the taxpayer had held onto from a couple of prior years. The ones left over after some were sold to cover the taxes associated with the vesting of shares from those prior years.

After having spent a considerable amount of time reviewing a voluminous amount of documents, I was able to establish the cost basis for all three of these transactions. However, it was no simple task as it involved stock-splits and partial amounts of W-2 income. My question is: In my response to the IRS, do I have to provide my back-up documentation with respect to how the cost basis was ascertained or can I just provide the cost basis for the stock transactions in question?

The third transaction was reported incorrectly on the original return. (a) The sale was reported as Short Term when it should be Long Term and (b) while the cost basis was reported correctly, the sales proceeds that were reported are incorrect. My question: Can/Should I submit a "revised" F-8949/Sch. D with my response in order to correct these items as well as to address the other two transactions? Or photocopy the forms from the original return and make the corrections and additions on them?

Lastly, with respect to the proposed changes, the IRS calculated a "substantial tax understatement penalty," a "failure to file penalty," and, of course, "interest." My question: Should my response include a request for an abatement of the "penalties" ( I know interest isn't abated) OR should I wait for the IRS's response and if it still includes these items, send another letter requesting the abatement.

Thanks in advance for any input or suggestions.

Grace

My suggestion would be to just let the IRS know the cost basis in the response, then if they want more information, let them ask. As far as the third transaction, I would think fixing an error will mean an amendment, however, you can just inform them of this and see what happens. In respect to penalties and interest, I would wait until they ask for a correct amount of tax, then deal with the penalties and interest at that time.

[JohnH]

I agree with Super Mom. When responding to CP2000's, less is best. Just send them the proper form with the lines filled in and see what happens. I've sent in some pretty wierd-looking Schedule D's (as well as Schedule A's in response to missing gambling winnings) just knowing that there would be questions. Yet the only response was a "thank you" letter and an adjustment up or down, as appropriate.

That isn't to say you can just send them anything - you certianly need to have the backup info and the numbers need to be supportable. But I think that IRS just wants to close the matter out, and they probably see a lot of what we might think of as unusual responses anyhow. So a nice, neat, compliant Schedule D and 8949 (depending upon the year in question) which resolves the issue is generally all they want. That's all they would have seen if the transation had been reported correctly on the original return, so it isn't as though they are missing any normal info. I wouldn't even send a cover letter or explanation - just the correct forms and a copy of the original notice, maybe with the words "see attached" written in the margin.

Some people want to overwhelm IRS with evidence and lengthly explanations, but I think it's mostly a waste of time and can be counter-productive. Sending too much info has the added downside of giving them something else to ask questions about. So make it simple for IRS and maybe they will do the same for your client.

[TAX4US]

I wonder if maybe an X wouldn't be better. Reason is some states require an amended return if the federal gets changed. Just my thought on the matter. I have seen some of these CP2000 be so far out of wack that you almost have to start over. Mostly these were self prepared returns.