IRS notice CP2057

[Kram BergGold]

Any thoughts on this new notice coming out in maybe October asking taxpayers to double check their income figures and possibly file an amended return?

[erchess]

Observations

I think the notice in question is an understandable attempt by the IRS to deal with the massive problem of understated income. I think it will frustrate and anger the probably numerous honest taxpayers who receive it. I think we will have massive problems as long as we try to tax income.

I think the Supreme Court was right when it said that the Constitution forbade an income tax and I think Congress, the President, and the States were imprudent when they Amended the Constitution to in essence overturn that Decision. Notice that I disagree with tax protesters who claim to believe that this Amendment was not validly passed. I think it was validly but imprudently passed. The result has been a system of taxation that is so complex that probably no single individual could ever hold in his or her mind the knowledge to properly prepare a return in every possible situation without pausing to do research. It is so complex that most professionals specialize in a relatively small area. People are understandably resentful of the intrusiveness of the taxing agencies and of the widely accepted fact that many people of all income levels get away with understating income and/or overstating deductions and credits. People also argue that the system itself is either not progressive enough or too progressive.

I think the Federal Government should get by on taxes on some or all spending and on taxes on imported goods

[DTS]

Any thoughts on this new notice coming out in maybe October asking taxpayers to double check their income figures and possibly file an amended return?

Kram,

I am probably mistaken on this, but this sounds like the fishing expedition CA did a few years ago when they put out the letters to taxpayers and offered them amnesty if they "fessed up". Scare tactics. I never heard of one case where this came of anything. Not to say it did not bring in some revenue to CA. Clients do not like these letters. I had several clients that received them and they were scared. After some discussion, I told them to ignore them and not one of those ever went any further.

I think we'll get a better feel for this once we see the first letters coming out. In the meantime, I will be telling my clients to be wary of it, just in case. All but a few will be fine I'm sure.

[BOB W]

What sounds like a rediculous IRS attempt may not be so stupid.

Any person that gets a letter will feel that it is PERSONAL and will think IRS knows something about him or her, Or, is being "watched". The short and long term effect will be a more conservative tax return filing this tax season for those who recieved such a letter.

I wouldn't be suprised if those letters, while maybe randomly selected, are going to be used in the future to compare older returns to the "post-letter" returns to establish another source of revenue by "intimidation"........................

Under normal circumstances I would say that the IRS doesn't have time for such followup, but IRS does test various projects now and then.

Recently NYS sent letters to Sales Tax Filers asking about Use Tax. They did not ask to pay any particular amount that may be due, but to remind everyone that Use Tax Liability is part of filing their Sales Tax returns and gave a brief discription of what USE TAX WAS.

[solomon]

Not much progress on the tax gap, so more of the same. Intimidate - Intimidate. 31K CP2057's for 135M 1040's.

[Black Bart]

Are they sending them to everybody?

Any thoughts on this new notice coming out in maybe October asking taxpayers to double check their income figures and possibly file an amended return?

If so, I'll bet it would definitely be a problem.

About 15 years ago I fixed a customer's omitted W2 and the next year he got a form letter reminder asking him to recheck current figures. It was obviously an IRS revenue-raising dodge, but nobody else got one and he didn't get anything the next year, so I figured it was a random venture that didn't pan out and they dropped it.

While the notice was basically nothing and I told him so, any IRS letter carries weight with taxpayers -- he was worried. After explaining at length and assuring him he had nothing at all to worry about he said "Well, if you wouldn't mind, I'd like to take it to my lawyer and have him look it over." And I believe he did (for all the good it did since that lawyer calls me for tax advice).

So, anyway, it's much ado about nothing, but if everybody gets one it's sure going to be a pain in the neck and a whole lot of useless unpaid explaining to do.

[Black Bart]

But...but...uh...look here, Erchess

I think the notice in question is an understandable attempt by the IRS to deal with the massive problem of understated income. I think it will frustrate and anger the probably numerous honest taxpayers who receive it. I think we will have massive problems as long as we try to tax income.

I think the Supreme Court was right when it said that the Constitution forbade an income tax and I think Congress, the President, and the States were imprudent when they Amended the Constitution to in essence overturn that Decision. Notice that I disagree with tax protesters who claim to believe that this Amendment was not validly passed. I think it was validly but imprudently passed. The result has been a system of taxation that is so complex that probably no single individual could ever hold in his or her mind the knowledge to properly prepare a return in every possible situation without pausing to do research. It is so complex that most professionals specialize in a relatively small area. People are understandably resentful of the intrusiveness of the taxing agencies and of the widely accepted fact that many people of all income levels get away with understating income and/or overstating deductions and credits. People also argue that the system itself is either not progressive enough or too progressive.

I think the Federal Government should get by on taxes on some or all spending and on taxes on imported goods

About that last sentence, I, hmm...er...uh...well, I hate to seem like a narrow-minded wet blanket, but...uh...at the risk of stating the obvious and appearing to be a self-serving, selfish wretch, wouldn't that...uh...mean that our profession (tax preparation for any who may have forgotten) would...uh...cease to exist?

While I like to think of myself as open-minded, there's such a thing as being so open-minded that one's brains fall out.

[JoshinNC]

Our jobs would not be endangered

About that last sentence, I, hmm...er...uh...well, I hate to seem like a narrow-minded wet blanket, but...uh...at the risk of stating the obvious and appearing to be a self-serving, selfish wretch, wouldn't that...uh...mean that our profession (tax preparation for any who may have forgotten) would...uh...cease to exist?

While I like to think of myself as open-minded, there's such a thing as being so open-minded that one's brains fall out.

due to something like a consumption tax.

Here's an example:

My clients want a loan from a bank. Currently the bank asks them for their tax return. They call me, I fax a tax return to the bank, everyone is happy. Under a consumption tax model there would no personal (or corporate) tax returns. So, what does the bank need to verify income (and expenses)? A CERTIFIED personal worth statement ( or whatever you want to call it). Who can provide this? A CERTIFIED worth statement preparer (or some other fancy title), for which you could charge a one time fee to prepare on an ongoing fee to keep them up to date for future purposes. Also, each and every company would need to file a national consumption tax return (not just those subject to state sales tax, but ALL companies, S - Corp, C - Corp, LLC, sole prop, etc.). There would be plenty for us to do in this type of environment. And, with this type of set up, you eliminate the possibility of Congress benefiting certain types of behavior and punishing others through the tax code.

IMHO

[erchess]

To Black Bart

I would be willing to find honest work if income tax work becomes unavailable. Most of us in the tax profession are capable of doing Accounting and all of us are capable of learning to assist people with other kinds of taxes. The sales tax will be fairly simple but the tax on imports will be complex enough for the best of us.

Besides that, the American People are not yet so tired of the IRS that very many people are willing to give up their tax deductions and credits. Tax Reform to most Americans means making other people give up their deductions and credits.

But as for me, I have done things other than taxes in my life and if someone could fix it so that I spent no more than fifteen minutes a year calculating my taxes, I would gladly go back to one of my former sources of income.

I do think Josh has the sales tax situation wrong. What we would do is all carry something the size of a PDA that would be capable of linking to our banks and to the government. Every time taxable income came in and every time taxable spending went out the money we owed would be electronically taken from us. No fuss no muss no bother and because each amount would seem trivial we wouldn't mind. When we wanted a loan we would let the bank check its own records or let another lender read or PDA. This is probably not the time to say this, but I'd like to stop the loaning of money at interest too but that is also a pipe dream.

[Snaggletooth]

Scare the TurboTax crowd?

These notices would scare the do-it-yourself crowd. These folks would be very much afraid of such a letter because they don't have enough confidence that they did their taxes right. And who are they going to call? Box?? Nope, they will call people. People like HRB and us.

Seems like 90% of the time when I am asked to investigate someone's TurboTax return, I find money left on the table by the taxpayer. I think IRS is very much in support of TurboTax, as it is both trouble-free and revenue-friendly for them. If they think about it long enough to reason, they would make sure none of the TurboTax self-preparers got one of these notices.

From your existing customers, look at these things as a PITA. From non-customers, look at them as an opportunity.

[taxea]

IRS notice CP 2057

Does anyone have a reference that explains this notice? I searched the IRS site yesterday and couldn't find anything....taxea

[S T]

under "Can we charge"

This is the link that I posted under the other thread, it came through as an email from WebCPA.
http://www.webcpa.com/article.cfm?ar...m=irs%20notice You will see it is referred to as an "automated soft notice".

On Friday 8/29/08 I also received it in my email from the NAEA E@alert http://www.magnetmail.net/actions/em...1&user_id=NAEA

Sandy

[taxea]

IRS notice CP2057

Sandy
Thanks for the links...guess I should have googled the notice instead of going to the source! taxea

[S T]

Original Post

Well the original thread I posted took a turn to another issue rather than the actual notice, so I am glad that Kram re-posted.

That is what is so great about this board and the participants, we each have our own contributions, we all learn, we share even if some time not totally directed at tax issues. No matter what, there is just a lot of valuable information that I believe all of use in our practice at some point.

As some have posted in the past this Board is like our "virtual office" so we can meet with colleagues to pose situations and what ifs.

And don't forget the "search feature ", as it will bring up a multitude of past posts.

Sandy

[Black Bart]

Maybe so, but

...example:My clients want a loan from a bank. Currently the bank asks them for their tax return. They call me, I fax a tax return to the bank, everyone is happy. Under a consumption tax model there would no personal (or corporate) tax returns. So, what does the bank need to verify income (and expenses)? A CERTIFIED personal worth statement ( or whatever you want to call it). Who can provide this? A CERTIFIED worth statement preparer (or some other fancy title), for which you could charge a one time fee to prepare on an ongoing fee to keep them up to date for future purposes.

I don't think that would cut the mustard for most of us. Clients need tax returns each and every year, but how often do they need a bank loan (last time I got one was 1990)? In 2007 I wrote up financial statements for bank loans on maybe half-a-dozen guys; meanwhile back at the office, I did 500 tax returns. Banks used to do a brisk business in auto loans, but they've lost a lot of that trade to the car companies who offer anywhere from zero to 4% financing which banks can't/won't match. But even if banks were competitive, the auto dealers don't demand balance sheets -- they run a credit check and if it's halfway decent, you've got a car.

I just don't see the volume in financial statements as being anywhere near enough to offset the loss of tax preparation.