Amending a Tax Return after CP2000 Notice

[ATSMAN]

Friends here is the situation that I have never faced in all my years in this business:

1) Taxpayer self prepared 2014 Fed return and did not include $5000 worth of stock sales.
2) Receives CP2000 notice in 2017 (March) and panics and pays the tax plus penalty and interest.
3) Hires me to prepare the 2016 tax return that was on ext. and tells me about it. I tell him that he has basis in the stocks and he overpaid the tax. His broker provide him the basis after he paid the assessment?
4) He calls IRS to get it straightened out, but they refuse to do anything because he agreed with the CP2000 and paid and the matter is closed.

Should I file a 1040X for 2014?

How would you guys handle this situation?

[Rapid Robert]

4) He calls IRS to get it straightened out, but they refuse to do anything because he agreed with the CP2000 and paid and the matter is closed.

Should I file a 1040X for 2014?

Yes. I've had similar situations, where taxpayer paid CP2000 amount before coming to me, then we filed a 1040X to get the correct refund when all the errors were sorted out by me. The 1040X form has a line to show "Total amount paid with request for extension of time to file, tax paid with original return, and additional tax paid after return was filed". It's that last part where you show the extra payment made, so you can get a refund.

It's not much different from filing two 1040X in sequence, if new information comes to light after the first 1040X.

There is also this language from LTR 1802C which also implies that 1040X is the correct step.

"We have adjusted your tax account for the year shown above per the
information you provided. An additional notice will be sent that
explains the adjustment we made.
If you later find additional information that would cause an increase
or decrease in your tax, you should file Form 1040X, Amended U.S.
Individual Income Tax Return, to correct your tax account. "

Next, you're going to ask, which amounts to use for the original return column on 1040X. I think you go back to the original return, not the CP2000 adjusted version. Or, best bet, check the account transcript, as I think that's what IRS computer is going to compare to.

[ATSMAN]

Thank you for the answer. I was thinking along those lines as well, instead of calling the IRS with a POA and give it another try.

[Roland Slugg]

Next, you're going to ask, which amounts to use for the original return column on 1040X. I think you go back to the original return, not the CP2000 adjusted version. Or, best bet, check the account transcript, as I think that's what IRS computer is going to compare to.

That is not correct. From the F-1040X instructions:

Column A. Enter the amounts from your original return. However, if you previously amended that return or it was changed by the IRS, enter the adjusted amounts.