CP2000

[Karen Lee]

CP2000 was issued and additional tax owed because client didn't report distribution and cost basis from investment.

This is what the CP2000 states:

"We used the cost basis shown in box 3, on Form 1099B, Proceeds From Broker and Barter Exchange Transactions, provided by the broker. If the broker did not provide an amount in box 3, we used a zero costs basis...".

1099B does have the cost basis and shows a loss...(not to mention loss CO from previous year) Client is a student across the country and decided to do her own taxes and be a big girl.

Client did not claim the distribution and IRS did not pick up the cost basis.

Is IRS doing their own phishing or just making blatant errors?

Karen

[Don in Upstate NY]

Assuming you are talking about a 2011 tax return. That was the first year that basis was reported to the IRS.

The 1099-B sent to the IRS would contain a basis in box 3 only if this had been a covered transaction. That would be the sale of a stock purchased in 2011. The sale of anything else would be an uncovered transaction and the basis would not have been reported to the IRS.

The confusion comes in because the broker may have gratuitously reported the basis of an uncovered transaction on the 1099-B sent to the taxpayer. There is no requirement that the 1099-B sent to the taxpayer must match the 1099-B sent to the IRS.

So the taxpayer looks at box 3, sees a basis and calculates a loss, while the IRS looks at box 3, sees nothing, assumes a zero basis, and calculates a gain.

[Guest Taxed]

I just got off the phone with a client who had many transactions in 2011 in his brokerage account to pay bills since he lost his job. Previously I used to send a paper copy of the 1099-B with the summary pages showing the individual transactions and on the schedule D just show the totals. it worked but with this new MeF i hear you can attach pdf files instead of sending paper. Any body used Mef before with pdf attachments. how does that work? I hate to think that i have to list each individual transaction on the worksheet.

[cpasouthflorida]

Unfortunately you do have to include a detail of all stocks sold. Most softwares nowadays allow you to import the data from a spreadsheet. If you paper file you might want to just print your spreadsheet and attach it to the back of Schedule D. You can also find additional information and a more in depth analysis of a CP2000 letter here http://www.mycpa.net/press/73.html There is actually a PDF of an actual CP2000 and the article explains each item from within the letter.

[Guest Taxed]

Do you know if IRS allows a PDF of the 1099-B to be attached to the return and still be e-filed or are we forced to do paper returns, if we choose not to list each trade on Form 8949? Sch. D will show the summary totals to calculate net gain or loss (long/short term)

[Lloyd Hudson]

You do summary on 8949 add spreadsheet to 8453 sign and mail the 8453, e-file the return.