New Client - CP2000, advice requested

[Janitor Bob]

New client (single, 44-year old mother). She filed her own 2011 taxes (using turbo tax or something). client moved shortly thereafter...actually moved a few times in 2012 and early 2013. Her mail is just now catching up with her.....one piece of which is a IRS CP2000. Her 2011 return and all back-up documentation was lost in the move(s), so I have ordered her a transcript, but otherwise, I am relying on her memory and numbers from the CP2000.

IRS made 4 changes to her return as follows...

1) Unreported Retirement Income (1099-R) $6,280. Client withdrew money from 401k and then immediately deposited same amount into IRA with another bank...she did NOT have the plan roll it over...she took check in hand, then deposited that check into the new IRA...So I assume her 1099-R had a code of "1"...not "G". Client obviously did not report this 1099-R on her return. and IRS does not know about her deposit into IRA...which I assume was also not reported on her 2011 return.

2) Unreported Interest income (109-INT) of $50.00. Client does not remember what this is, So I will assume IRS is correct and that she neglected to include data from a 1099-INT.

3) $680 withdrawal from HSA (1099-HSA): Client did withdrawal $650 from HSA to pay medical bills, but did not report anything on her return...So all the IRS sees is the withdrawal.

4) Because of increased income from items 1-3, IRS took away her Earned Income Credit of $635 and Retirement Savings Credit of $32.

Since this CP2000 just caught up with her, the deadline to respond has passed (Feb 6th, 2013).

I plan on replying anyway, explaining the above and hoping the IRS will remove all but item 2, But how do I explain item 1?

Also....since all documents were lost, client has no way of supporting any of her claims. Should I try anyway? Should I include a 1040-X with the CP2000 reply?

Oh...and she did not file her 2011 Ohio return at all....So I'll need to do that for her once I get her 2011 Fed transcript.

and then we move on to 2012

[jasdlm]

I would 'disagree with proposed changes' and attach a 1040X with the explanation in the appropriate place on the 1040X.

If you have 2848, you can get a record (online) of what the IRS has, so you will see the source of the interest income.

[jainen]

>>IRS does not know about her deposit into IRA<<

Form 5498 and 1099-INT will be in her transcript (you need both transcripts, return and account). Doctor's office will likewise provide an account record. Since that is all so simple, you'll be able to resolve this very quickly. CP-2000 is just a proposal--tax has not yet been assessed.

Call the collections number on the form and ask for a 14 day hold so you can respond.

[neilbrink]

Her 401K plan would have withheld 20% of her distribution for federal taxes, so she would have only deposited 80% of the distribution into the new IRA account unless she added the other 20% from her own funds. The new bank should be able to produce documents confirming this. If this is correct, she would be liable for taxes and penalties on at least the 20% also.

[Janitor Bob]

Good point Neilbrink...Thanks. Can I talk to IRS about this (I'm just an RTRP and did not prepare the return in question) or does client need to call and request 14-day hold?or should I have client sign a power of attorney form and send that to IRS?

[Janitor Bob]

also, I could not file the request for transcript on-line since her current address is different from what IRS has on file.....this is going to drag out for a while, I'm afraid.

[jainen]

>>this is going to drag out for a while, I'm afraid.<<

Not at all. Simply phone with the client in your office. You might just tell the client to do it, but then you couldn't charge a fee for looking like a genius. All you want to say is the 14 days thing and please send the two transcripts.

[MsTabbyKats]

File a 1040-X

For

1. Attach a letter from the bank showing the deposit (also...get 1099R to show the distribution)

2.$50 interest....just go with it...probably correct

3.Correct HSA stuff with the amended return

4.Should be resolved with the above corrections

IRS may not talk to you...since you didn't do the original return. Have client call the IRS to tell them about the move, and that an amended return is in progress.

[Jack from Ohio]

File a 1040-X

For

1. Attach a letter from the bank showing the deposit (also...get 1099R to show the distribution)

2.$50 interest....just go with it...probably correct

3.Correct HSA stuff with the amended return

4.Should be resolved with the above corrections

IRS may not talk to you...since you didn't do the original return. Have client call the IRS to tell them about the move, and that an amended return is in progress.

Get a document from both sides with dates. No dates, the IRS will not allow. First hand experience.

[Terry D EA]

You can also fill out form 8821 for tax information authorization. This will enable the IRS to speak with you. You can fill out the 2848 but as you said you didn't prepare the return and your credentials are such that the form is almost useless anyway.

[Cathy]

JB,

NO 1040X! It takes to long to process to rectify the problem. IRS wants to clear their files as soon as possible just as your client does.

You can complete a Form 8889 for 2011 and attached it to the correspondence you send, along with proof from the 401(k) company in regard to the date the retirement was disbursed and also from the receiving trustee of the rollover if you don't see that information anywhere on the transcript when you get it. If the interest is hers, simply plug in the $50 to a dummy return you prepare for 2011 and tell IRS that she does agree with the additional $50 in income and the resulting difference that she owes IRS due to the additional interest.

Good luck!

Cathy

P.S. Don't forget to charge accordingly, especially this time of year!!!!!!

[joanmcq]

Cathy has it right. No 1040x. Just respond to the notice, after calling to get a hold put on. If the first Cp2000 only expired a bit more than a month ago, a second CP2000 is generally then sent confirming the tax. The 90 day notice may not have been sent yet. If you get a hold put on the account, and have her change her address of record while you are on the phone with the service center, you can have that delayed as well to give you time to respond. Get the 8821 filed too.

[Cathy]

Almost forgot this too! Don't send your response Certified, Return Receipt Requested per the Collection Division as it slows up the response by almost a week!

Do send you response Priority Mail though. A tracking label comes standard now with Priority Mail. They put one part of the tracking label on the outside of the envelope or folder (they are both free....folders & envelopes) and the post office will give the sender the other part of the label that you can use to track your response on the USPS web site.

Cathy

[joanmcq]

Even better, fax it.

[Cathy]

The fax really is the quickest way especially if you can butter up to one of the agents and get his/her personal fax number that goes directly to their computer. Actually, that DEFINITELY is your best bet!!!!

[TaxWizard]

Your client's story strikes me as patently false. Unless she's your girlfriend, send her packing.

[TaxWizard]

ALWAYS send a copy by CERTIFIED MAIL. Lawyers will often send a document 3 or 4 different ways to be sure receipt can be proved in court.

[TaxWizard]

Technical note: when responding to a 90-day letter (Notice of Deficiency) it is mandatory you send the response by certified mail since this falls under the rules of the U.S. Tax Court.

[Janitor Bob]

The client is actually a friend and I know her story to be true....thanks to her facebook posts over the past year, I ( and many others) knew pretty much every detail of her story before we sat down. Unfortunately, this means I will not be able to charge near what I would like to.

,

I have completed her 2012 return....pretty nice refund thanks to education credits for her daughter in college.....but I hesitate to actually file it for her until we clear up the 2011 issues.....otherwise, I'm assuming they will just hold her refund.

The problem is that in order to process her daughter's financial aid, the school is requesting 2012 transcripts. I hope the school will wait and, if so, it won't negatively affect her daughter's aid.

what would all of you smart people do?....file 2012 now or wait a few weeks and potentially longer (extension) until 2011 is resolved?

[MsTabbyKats]

JB,

NO 1040X! It takes to long to process to rectify the problem. IRS wants to clear their files as soon as possible just as your client does.

You can complete a Form 8889 for 2011 and attached it to the correspondence you send, along with proof from the 401(k) company in regard to the date the retirement was disbursed and also from the receiving trustee of the rollover if you don't see that information anywhere on the transcript when you get it. If the interest is hers, simply plug in the $50 to a dummy return you prepare for 2011 and tell IRS that she does agree with the additional $50 in income and the resulting difference that she owes IRS due to the additional interest.

Good luck!

Cathy

P.S. Don't forget to charge accordingly, especially this time of year!!!!!!

Wouldn't you need to attach the 8889 to a 1040-X? I'm not too sure the clerk would just "staple it" to a return already filed. Especially because it would change the numbers that the IRS has in the system for this return.

Letters/forms from both institutions they would accept and want. (personal experience speaking).

I still go with "have client make a call that paper work is coming"....and amend.

That's what I do. I've found that if they know it's being worked on they'll give you a new "date" before those letters start coming.

And send it regular mail. Anything with tracking etc slows down the process.

[MsTabbyKats]

The client is actually a friend and I know her story to be true....thanks to her facebook posts over the past year, I ( and many others) knew pretty much every detail of her story before we sat down. Unfortunately, this means I will not be able to charge near what I would like to.

,

I have completed her 2012 return....pretty nice refund thanks to education credits for her daughter in college.....but I hesitate to actually file it for her until we clear up the 2011 issues.....otherwise, I'm assuming they will just hold her refund.

The problem is that in order to process her daughter's financial aid, the school is requesting 2012 transcripts. I hope the school will wait and, if so, it won't negatively affect her daughter's aid.

what would all of you smart people do?....file 2012 now or wait a few weeks and potentially longer (extension) until 2011 is resolved?

This smart person would "fill out" but not file until 2011 is resolved.

I just did one for someone whose husband didn't get his W-2 until mid March, but the school wanted the return by 3/1. I filled it out based on the last pay stub...she gave it to the school....and all was fine.

I don't think the "official IRS 2012 tax transcript" is available until August anyway.

[Janitor Bob]

This is what I have done.....I know they can complete all of the financial aid forms based on estimate.

[Jack from Ohio]

This is what I have done.....I know they can complete all of the financial aid forms based on estimate.

It will take as much as 3 weeks AFTER the 2012 return is processed before the transcript the college wants will be available from the IRS. Rampant fraud in this area with colleges in the past has caused them to require the IRS transcripts instead of the tax forms from the client.

First hand experience on this one. I have 3 children. From 2002-2010 I had children in college. Two years there were two in at the same time. If son had gone more than 2 years, I would have had all three in college at the same time. Currently my kids are 28, 26 & 25. Oldest went 5 years.

Back to the matter at hand. Filling out FAFSA with estimates will get the financial aid process at the college started. When the FAFSA is updated and completed will NOT change the amount of Federal assistance the student will or will not receive. However, some colleges have college based scholarships and grants that may be affected by the timing. Each college is different in that respect.

[Richcpaman]

Your client's story strikes me as patently false. Unless she's your girlfriend, send her packing.

Why?

There are no facts in evidence of this.

Rich

[joanmcq]

MsTabbyKatz , answering a CP notice does not require an X. They will make the necessary adjustments to the proposed tax based on the info you send in. It's an audit. Do you respond to an audit notice with a 1040X? No, you send the docs supporting your position to the examiner. And yes, I did one with a missing 8889 a few months ago, and sent in the form.