Two CP2000s same issue, both partly wrong, most efficient way to fix?

[Rapid Robert]

Is it better to try to work through PPS phone support, or provide written response with all supporting forms and docs from return?

Scenario: for tax year 2015 return I prepared, taxpayer receives CP2000 last October showing two omissions of income:

1) $2K of interest (taxpayer acknowledges I was not provided with this info at time of preparation)

2) taxable earnings on QTP distribution in excess of basis, also about $2K

We agree with correction number one. We don't agree with #2, and respond in writing by providing the QTP distribution worksheet that probably should have been provided with original return, all documents signed exactly as instructed in CP2000 letter. The QTP worksheet shows that entire distribution was less than qualified expenses, so none is taxable.

Now, 3 months later, a second CP2000 arrives saying "we received your response". But not only did they not correct the QTP taxable amount (they completely ignored the response), now the "shown on return" computation column no longer even matches the actual original return as filed. So without changing anything based on response, they still changed something, in error. Also, the new calculation is way off, there is now a PTC calculation that is totally bogus, both under "as shown on return" and "IRS corrected". Looking back at the first letter, there were probably some bad numbers in the "IRS corrected" column too, but we were just trying to correct the missing income problem, assuming everything else would pop up correctly after that. Taxpayer only owes a little over $200 additional tax, but 2nd letter now shows bogus amount over $1,500 due.

Note that this is not a matter of interpreting tax law or record-keeping, it is simply an error in processing the return. I have 3rd party authorization on the return, and have used that before with PPS to fix certain problems. I have also sent in letters signed by taxpayer to fix problems, and have had that work too.

[spanel]

Is it better to try to work through PPS phone support, or provide written response with all supporting forms and docs from return?

Scenario: for tax year 2015 return I prepared, taxpayer receives CP2000 last October showing two omissions of income:

1) $2K of interest (taxpayer acknowledges I was not provided with this info at time of preparation)

2) taxable earnings on QTP distribution in excess of basis, also about $2K

We agree with correction number one. We don't agree with #2, and respond in writing by providing the QTP distribution worksheet that probably should have been provided with original return, all documents signed exactly as instructed in CP2000 letter. The QTP worksheet shows that entire distribution was less than qualified expenses, so none is taxable.

Now, 3 months later, a second CP2000 arrives saying "we received your response". But not only did they not correct the QTP taxable amount (they completely ignored the response), now the "shown on return" computation column no longer even matches the actual original return as filed. So without changing anything based on response, they still changed something, in error. Also, the new calculation is way off, there is now a PTC calculation that is totally bogus, both under "as shown on return" and "IRS corrected". Looking back at the first letter, there were probably some bad numbers in the "IRS corrected" column too, but we were just trying to correct the missing income problem, assuming everything else would pop up correctly after that. Taxpayer only owes a little over $200 additional tax, but 2nd letter now shows bogus amount over $1,500 due.

Note that this is not a matter of interpreting tax law or record-keeping, it is simply an error in processing the return. I have 3rd party authorization on the return, and have used that before with PPS to fix certain problems. I have also sent in letters signed by taxpayer to fix problems, and have had that work too.

3rd party authorization only works in the Year you filed the return.. so only in 2016. They wont talk to you now without a POA.

Chris

[Rapid Robert]

3rd party authorization only works in the Year you filed the return.. so only in 2016. They wont talk to you now without a POA.

Thank you for the reminder, I used to know that but forgot. Instructions for 1040 state this limit, but I didn't check first. The expiration of 3rd party designee is actually the due date of the following year return, so it would have been April 2017.

So my question still stands, except now the phone to PPS option involves a little more work and delay, unless I get the taxpayer to accompany me on the call, not easy at this point as we work remotely.

I guess what I was getting at was, it seems that sometimes you can get a knowledgeable person via PPS and get things resolved quickly, but the written response gives a better log of what transpired, even if it takes much longer.

Has anyone heard of the "request an appeal" option? According to a recent IRS CE webinar on AUR, "Taxpayer can request an appeals hearing if response is not accepted by the IRS (but only before a Letter 3219 / 90 letter is issued by the IRS)". The most recent CP2000 threatens the issuance of NOD if response not received by mid March. If I have to go through the POA rigamarole, I'd just as soon go straight to someone who knows what they're doing, instead of the people who generated these erroneous CP2000 calculations.

Pub 5181 does indicate an appeal is possible, but doesn't give much detail on the process. In our case, we filed a response and the IRS didn't accept it, they ignored it, and then made other unexplained changes reflecting incorrect calculations on the tax return. So I don't want to just keep on doing that while waiting for the NOD to hit.

[taxea]

A written statement that includes copies of all supporting documents is a better way to go. I would also prepare a 1040X, without filing it, to further prove the TP's position. If that doesn't correct the problem contact Taxpayer Advocate before you go further.

[DonB]

Thank you for the reminder, I used to know that but forgot. Instructions for 1040 state this limit, but I didn't check first. The expiration of 3rd party designee is actually the due date of the following year return, so it would have been April 2017.

So my question still stands, except now the phone to PPS option involves a little more work and delay, unless I get the taxpayer to accompany me on the call, not easy at this point as we work remotely.

I guess what I was getting at was, it seems that sometimes you can get a knowledgeable person via PPS and get things resolved quickly, but the written response gives a better log of what transpired, even if it takes much longer.

Has anyone heard of the "request an appeal" option? According to a recent IRS CE webinar on AUR, "Taxpayer can request an appeals hearing if response is not accepted by the IRS (but only before a Letter 3219 / 90 letter is issued by the IRS)". The most recent CP2000 threatens the issuance of NOD if response not received by mid March. If I have to go through the POA rigamarole, I'd just as soon go straight to someone who knows what they're doing, instead of the people who generated these erroneous CP2000 calculations.

Pub 5181 does indicate an appeal is possible, but doesn't give much detail on the process. In our case, we filed a response and the IRS didn't accept it, they ignored it, and then made other unexplained changes reflecting incorrect calculations on the tax return. So I don't want to just keep on doing that while waiting for the NOD to hit.

I would do a conference call with the client on the line. A knowledgeable agent should be able to clear this up. Do the written response as taxea describes if the call doesn't work. Appeal if a 90 day letter arrives.

[DonB]

Is it better to try to work through PPS phone support, or provide written response with all supporting forms and docs from return?

Scenario: for tax year 2015 return I prepared, taxpayer receives CP2000 last October showing two omissions of income:

1) $2K of interest (taxpayer acknowledges I was not provided with this info at time of preparation)

2) taxable earnings on QTP distribution in excess of basis, also about $2K

We agree with correction number one. We don't agree with #2, and respond in writing by providing the QTP distribution worksheet that probably should have been provided with original return, all documents signed exactly as instructed in CP2000 letter. The QTP worksheet shows that entire distribution was less than qualified expenses, so none is taxable.

Now, 3 months later, a second CP2000 arrives saying "we received your response". But not only did they not correct the QTP taxable amount (they completely ignored the response), now the "shown on return" computation column no longer even matches the actual original return as filed. So without changing anything based on response, they still changed something, in error. Also, the new calculation is way off, there is now a PTC calculation that is totally bogus, both under "as shown on return" and "IRS corrected". Looking back at the first letter, there were probably some bad numbers in the "IRS corrected" column too, but we were just trying to correct the missing income problem, assuming everything else would pop up correctly after that. Taxpayer only owes a little over $200 additional tax, but 2nd letter now shows bogus amount over $1,500 due.

Note that this is not a matter of interpreting tax law or record-keeping, it is simply an error in processing the return. I have 3rd party authorization on the return, and have used that before with PPS to fix certain problems. I have also sent in letters signed by taxpayer to fix problems, and have had that work too.

Please keep us updated on this. These tangles are sometimes difficult to correct; sometimes easy.

[Rapid Robert]

Please keep us updated on this. These tangles are sometimes difficult to correct; sometimes easy.

POA finally got recorded, I downloaded transcripts for backup. Tried calling PPS first thing at 7 AM local time, got at least half a dozen calls disconnected "due to temporary technical problems" after going through all the voice menu prompts. One time I actually got through to an agent, who, after I provided my CAF number, simply said "something is missing" several times, wouldn't tell me what it was, and then hung up on me.

I waited an hour and tried again, got connected to a helpful agent with very little wait time, who agreed with me that the CP2000 letter had calculation errors in several places, but said he could not fix it because he was in NY and the letter originated from IRS office in CA. He added some notes, said my best bet was to fax a simple response, no forms or worksheets attached, simply requesting that they re-visit the CP2000 letter calculations because they appeared to be in error. He was optimistic that if someone who knew what they were doing simply took another look, they could fix the problem.

I said I really wanted to avoid the NOD issuance, asked for routine 30-days extra, again he said he couldn't really do anything about that.

I guess I'll try faxing the simple response, because going through the hassle of certified mail priority to get it IRS by Mar 14 isn't worth it, especially since there is no guarantee it will actually help.

[taxea]

As I posted above. It probably wouldn't take any more time to write a detailed statement with backup documents than sit on the phone waiting for someone to answer. Plus you then have everything documented for future reference rather than just notes from a phone call.

[Rapid Robert]

As I posted above. It probably wouldn't take any more time to write a detailed statement with backup documents than sit on the phone waiting for someone to answer. Plus you then have everything documented for future reference rather than just notes from a phone call.

I wrote a summary statement as a cover letter, indicating that we agreed to the one change, and that the CP2000 calculations should be reviewed. On the advice of the helpful agent, I did not attach a full set of revised 1040 forms worksheets and 1040X worksheet, he seemed to think that with his notes on the file at the IRS end, and my faxed cover letter, that alone might do the trick. I certainly agreed with him that I didn't want all the extra work. I sent a fax, not a certified priority paper mail, so I am taking a chance of the NOD being issued, but I'll cross that bridge when I come to it. It shouldn't be this hard to fix a calculation error, d'oh!

The fact is the tax calculation on this revised return is somewhat complicated. Self employed health insurance, premium tax credit, non-refundable tax credits that bring regular tax to zero, SE tax, AGI thresholds changed on Schedule A after missing income taken into account, etc. It turns out that with the extra income, the refundable PTC becomes a very small payback instead, but it is still covered by non refundable credits. The only thing this taxpayer owes is the loss of the refundable PTC, a little over $200. So as you can see the tax owed is very far removed from the additional 1099-OID income.

Because it is so complicated, I don't really want or expect the IRS to re-create the detailed return in their system (although they should be able to?). If this client were coming to me brand new with this problem, it would probably take several hours to figure it all out in terms of changed tax calculations.

[Rapid Robert]

All's well that ends.

Maybe I should have tried taxea's approach after all.

To finish this saga, yet another CP2000 was received, and to make a long story short, they arrived back at the original balance due from October, plus of course a few extra dollars of interest. I'm not surprised though that the calculations they show on the CP2000 are different from those on the original, as well as the correct ones. The CP2000 is NOT a good way to represent a tax return summary!!!

Taxpayer tells me they agree and will pay. It certainly looks better to them than the Feb/Mar letters demanding $1,500 or more, and I guess I won't remind them that they're just back where they started -- the qualified tuition plan withdrawal is still being erroneously taxed, so they're paying about $200 more than they really owe.

I feel bad about the whole thing, but not bad enough to refrain from billing them for my time -- but not a lot. The taxpayer and I did everything we were supposed to do, and still the IRS got it wrong.

Following taxea's advice I would have sent a complete set of revised forms, which would have taken a lot of time to write out explanations of all the changes (like filing a 1040X), and who knows if the result would have been better?

I suppose they still have time to file an amended return after the CP2000 is closed out and request a refund, but I'm not going to suggest it, the amount involved is just too small.

[JON]

Fax

If information is easy to respond to FAX the answer(s). Takes a while to get a response, but only once did I have to get anymore information.