Can a closed CP2000 letter be reopened?

[Grace]

Taxpayer received CP2000 letter for "2012" tax year in September of 2014. The letter said she owed $1800. She didn't consult with anyone, just paid it.

New client for me this year. I had her send me a copy of that Notice.

In 2011 she and her partner purchased a house together. Both names on the mortgage. 2012 Form 1098 issued in both names, but only her partner's social. According to CP2000, IRS couldn't find a Form 1098 listed under my client's social, so they removed the mortgage interest from schedule A and that resulted in her taking the standard deduction.

According to taxpayer, they had a joint banking account set-up where both contributed equal amounts to in order to pay mortgage.

She should have been entitled to 1/2 of the mortgage interest deduction.

If this can be re-opened, how do you go about it? And, what documentation should be sent with it (i.e. 2012 Form 1098 showing both names, original mortgage documents)? Will it be necessary to prove payments with bank statements?

Thank you in advance for any input.

Grace

[DaveinTexas]

Audit Recon

Here is what I would do, which would be one of two things:
1. You can request your client sign a POA so you can converse with IRS directly. This may be a good route to take regardless of what you choose to do next.
1a. Call the IRS on the notice and ask if the CP2000 can be re-opened. You will either get a yea or nay. I've had the AUR agent tell me they will re-open the case because the taxpayer never responded BUT don't rely on this as the 45 day response window has closed a few months ago.
2. Once you are on the phone with the IRS, if they reject the offer to re-open the CP2000, tell them you will seek a remedy through the Audit Recon unit. Ask if there is a specific address to submit correspondence if you choose the Audit Recon method.

Audit Recon is very handy, especially if the taxpayer never responded to the original CP2000. Typically, you can't raise issues that were already resolved in the first round (CP2000). This isn't a problem because there has been no response at all by the taxpayer.

My recommendation is to look at the Publication 3598; this will give you a bit of a step by step process to take in forming your Audit Recon proposal. Also, look here for more guidance: http://taxclinic.law.gsu.edu/collect...consideration/

And, when you are ready to proceed, look at the bottom of the page from the site I mentioned; there is a cover letter and a memorandum (which is a walkthrough of an Audit Recon case). What you need to remember is to list all of the facts you mentioned, back it up with substantiating documents (HUD-1 from original purchase, copy of deed, mortgage documents signed by both parties, etc, etc) and just write the Audit Recon in a clear, easy to understand way and you should do well. This case is fairly common these days. Remember to ask the IRS for a re-do first, it just might save you the Audit Recon trouble (worth a try).

Good luck!

[taxea]

1st have TP get bank to reissue 1098 to both owners. Then send a copy of the original return, the corrected 1098 and a statement of explanation with a F842.

[FEDUKE404]

Items to investigate

I know this is a bit simplistic, but assuming all of the facts are indeed correct (two persons on mortgage/deed, each paid half, etc.) why not consider a suitable response showing a "corrected" 2012 Schedule A with the mortgage interest NOT reported on line 10 but instead reported on line 11 ? That certainly would have been a reasonable approach/response to the original CP2000 notice!

As for the Form 1098, you first should ask bank/lender why there was only a single SSN on the Form 1098. Have you actually seen that tax document? ?

And then a reasonable and relevant follow-up question: How did the two persons report mortgage interest and real property taxes on their 2013 and 2014 tax returns? ? (And how were the 2011 -- year of purchase -- tax returns prepared?)

For my 2¢ worth, I am a bit astounded that the person involved, with the facts presented here, would have just forked over $1,200 upon initial receipt of the CP2000 notice.

FE

[Snaggletooth]

Even Simpler Solution

All of the contacting mentioned in earlier responses will today be put in the stack of huge backlog situations the audit division is having to deal with. Even if you call them they might not talk to you. If you correspond they are likely to take 1-2 years to rectify this, and send your client letters that "we'll need another 60 days to investigate this." And within 60 your client may get ANOTHER 60-day letter.

The fact that your client sent them the money will make it even more difficult for this matter to get attention.

Soooooo - If your client has a "partner" with whom she is on speaking terms, how about you calculate the difference and let them settle amongst themselves? Keep in mind that this other "partner" probably deducted the entire benefit of 100% of the 1098 unless she knew better. If they can settle, then your client doesn't have to fool with the IRS at all.

This won't work if the other partner deducted only 50% of the interest.

Keep in mind this solution is not proper according to our tax code - each partner should deduct 50%. But could be easier on your client and if there is no appreciable difference the IRS will not care, trust me.

[Roland Slugg]

Why not just file an amended return, Form 1040X?

[taxea]

Why not just file an amended return, Form 1040X?

Because the original return was correct...it was the IRS who changed it. All the TP needs to do is prove them wrong. If a 1040x is submitted wouldn't it be an exact copy of the original?

[FEDUKE404]

Dealing with BOTH sides of the tax coin

All of the contacting mentioned in earlier responses will today be put in the stack of huge backlog situations the audit division is having to deal with. Even if you call them they might not talk to you. If you correspond they are likely to take 1-2 years to rectify this, and send your client letters that "we'll need another 60 days to investigate this." And within 60 your client may get ANOTHER 60-day letter.

The fact that your client sent them the money will make it even more difficult for this matter to get attention.

Soooooo - If your client has a "partner" with whom she is on speaking terms, how about you calculate the difference and let them settle amongst themselves? Keep in mind that this other "partner" probably deducted the entire benefit of 100% of the 1098 unless she knew better. If they can settle, then your client doesn't have to fool with the IRS at all.

This won't work if the other partner deducted only 50% of the interest.

Keep in mind this solution is not proper according to our tax code - each partner should deduct 50%. But could be easier on your client and if there is no appreciable difference the IRS will not care, trust me.

Snaggletooth has, as usual, offered a logical and "real world" perspective to this situation. Having recently endured a prolonged battle with the IRS for a family member (I/we had a nice collection of "we'll need another 60 days" letters from the IRS) I know first-hand how these things can drag on forever. I handled everything via POA and mail, which leaves a nice trail of information. In the early going, my offspring did attempt a couple of telephone calls to the IRS (and this would have been >3 years ago!) and realized that was unproductive, especially when she received from them completely contradictory answers to one issue that was relevant.

Without needing to pursue anything about the actual relationship (if any) between the taxpayer and "the partner" it is a true statement that (with the facts presented) each of the two should have claimed 50% of the mortgage interest and 50% of the real property taxes from 2011 through 2014. But before Grace starts working on repairing the 2012 (and later?) tax returns it is critical that she find out what "the partner" had been doing with the same mortgage interest and property taxes for those years. Having been around way too many tax returns over the years, it is at least a real possibility "the partner" (or an unknowing/uninformed tax preparer for same) could have claimed 100% of both deductions. Then a small problem becomes a greater problem, especially when "the partner" receives a personalized collection of CP2000 notices.

If this was a one-year, isolated problem for 2012 AND "the partner" returns were prepared properly, then this is a relatively easy fix. Whether a Form 1040X would now fly is unknown, but certainly preparing a well-written response with supporting documentation would be sufficient.

As for taxea's comment "Because the original return was correct...it was the IRS who changed it. All the TP needs to do is prove them wrong," that may not be a valid conclusion IF the taxpayer had reported "Form 1098 mortgage interest" when in reality there was none. I suspect that if the client had originally reported half of the mortgage interest on the "mortgage interest NOT reported on Form 1098" line of Schedule A then we would not be having this discussion.

FE

[JON]

Amend

make reference column one is with the CP adjustment!! Attach proof - then wait a long time for it to be processed!!!

[Grace]

Follow-Up

First, thank you all so much for your input. I really appreciate it!

Yeah, this stuff can get really messy. Especially when the client is not completely forthcoming with all the facts. She initially told me that she paid the entire mortgage. Then when I asked her if she could produce the checking account records showing this, she changed the story to the joint checking account with both parties putting monies in to pay the mortgage.

On the original return, she claimed all of the interest as that was the agreement she had with her partner. (Their thinking "She had the higher income so she would benefit the most"). The partner did not claim any of the interest.

I'll work on this 2012 matter and get all the information and documents I need. It's just a matter of time before she gets the CP2000 for tax year 2013 so I'll have to get those ones too.

In the meantime, the two have split up and the house was sold in 2014

Thanks again!

Grace

[taxea]

First, thank you all so much for your input. I really appreciate it!

Yeah, this stuff can get really messy. Especially when the client is not completely forthcoming with all the facts. She initially told me that she paid the entire mortgage. Then when I asked her if she could produce the checking account records showing this, she changed the story to the joint checking account with both parties putting monies in to pay the mortgage.

On the original return, she claimed all of the interest as that was the agreement she had with her partner. (Their thinking "She had the higher income so she would benefit the most"). The partner did not claim any of the interest.

I'll work on this 2012 matter and get all the information and documents I need. It's just a matter of time before she gets the CP2000 for tax year 2013 so I'll have to get those ones too.

In the meantime, the two have split up and the house was sold in 2014

Thanks again!

Grace

now we know the real problem! She reported all the interest as agreed with her partner. Well, does the mortgage company know this? If they had a letter instructing them to issue the 1098 to her there would not have been a problem.

prior post said "As for the Form 1098, you first should ask bank/lender why there was only a single SSN on the Form 1098. Have you actually seen that tax document?'
The issuer by SOP issues the 1098 to the "primary" (1st ssn) on the loan. if the borrowers don't instruct the issuer of their wishes this is what happens.
i stand by my original post with this change:
Have borrowers document, and sign, instructions to the issuer as to how they want the 1098 issued. once they have the corrected 1098 in her name send it with the original 1040 and F842 to the IRS address that sent the CP2000. And yes it will probably take time to get the additional refund issued. The IRS and the finance companies do not read minds....

[Roland Slugg]

Isn't it lovely when we get one set of facts in the OP, then after several people here spend a lot of time and effort responding to those facts, we get a different set of facts?

[kathyc2]

First, thank you all so much for your input. I really appreciate it!

Yeah, this stuff can get really messy. Especially when the client is not completely forthcoming with all the facts. She initially told me that she paid the entire mortgage. Then when I asked her if she could produce the checking account records showing this, she changed the story to the joint checking account with both parties putting monies in to pay the mortgage.

On the original return, she claimed all of the interest as that was the agreement she had with her partner. (Their thinking "She had the higher income so she would benefit the most"). The partner did not claim any of the interest.

Personally, I would be a little leery of getting involved with this. You indicated client was not truthful upfront. How do you know she is being honest as to what partner claimed/didn't claim on return?

[JohnH]

I agree.
It's time to hand all the client's info back to her and suggest she find someone else to handle the mess.
Or maybe she's better off just leaving things as they are - I'm beginning to think there's a reason she paid that assessment

And if the property is now sold, there's all that messy capital gains and basis work to be done, based on info from a client who seems to have something to hide.