As Cleveland tax preparation specialists we spend most of our time after “tax season” (the time period between Jan 14th and April 15th of each year) focusing on new clients that come to us with IRS, Ohio and local back taxes, tax resolution issues that can include wage garnishments and tax penalties and helping sort out collection letters from the IRS, RITA and CCA.
What is the IRS Notice CP2000?
One of these letters that recently sent a Cleveland area man our way was the IRS Notice CP2000. The IRS Notice CP2000 is, in essence, a notice that the IRS has received information from another entity – it could be an employer, financial institution or other third party, that doesn’t match the information you filed on your previous tax return. Refer to the IRS website “Understanding Your CP2000 Notice” for more information.
Notice CP2000 is Not a Bill, But You Must Take Action Quickly
Although the IRS Form, or Notice CP2000, appears like a bill, with a bold line saying “Amount due by (a month from date of Notice) … $10,165 (or whatever figure the IRS has calculated), it is NOT a bill. However, if you don’t respond to Notice CP2000, you will receive a Statutory Notice of Deficiency, followed by an IRS bill, for the proposed amount due, at which time the IRS starts adding on interest and penalties.
Use an Enrolled Agent to Respond to IRS Notice CP2000
It is not uncommon to disagree with the new calculations from the IRS, which is actually the very purpose of the notice – to give the taxpayer time to refute the IRS calculations. Although notices from the IRS can be intimidating, and giving you a mere month to determine if the new information actually impacts your tax obligation to the extent the IRS has initially calculated can seem unfair, you can relax. If you’re in the greater Cleveland area, pick up the phone and call Ken Weinberg right away at (440) 777-2207. Ken specializes in Cleveland IRS tax help and has worked with many Cleveland area clients to resolve IRS CP2000 Notices.
As an Enrolled Agent Ken Weinberg can not only represent you to the IRS, he has direct phone access to IRS officials that can move your response along quickly. If you are not in the Cleveland area, look for an enrolled agent in your market and they will likely be your best option.
Recent CP2000 Case: Calculating Cost Basis for Securities Sales
Just last month Ken had a Cleveland area gentleman contact him about receipt of Notice CP2000. The gentleman had sold some stock, generating an IRS Form 1099-B for him and for the IRS to disclose when you sell stocks, bonds, derivatives or other securities through a broker. In some cases the IRS Form 1099-B can get misfiled, mailed to the wrong address or not sent at all. In this instance it wasn’t accounted for when the gentleman filed his taxes in 2015. Over a year later, in March of 2017, he receives the CP2000 notice declaring he owes the IRS over $6,000 by April 2017 – not great timing to get assistance from most tax preparation professionals. At Ken-Mar Tax we were able to ask the IRS for some additional time to attend to the matter while still finishing up tax preparation season, which was granted.
What Does the IRS Use to Calculate Cost Basis?
After tax preparation season came to a close, we reviewed the 2015 tax return, reviewed the CP2000 Notice, contacted the IRS for a copy of the Form 1099-B that the gentleman had not received, but the IRS had and got to work. The 1099-B received by the IRS only reports the amount that the securities were sold for, not how much profit was gained. So in this case the IRS had no way of calculating a cost basis, or the original value of an asset adjusted for stock splits, dividends and capital distributions, and the IRS system defaults to zero as a cost basis. As you can imagine, the gentleman in this case did not get these stocks for free, and once Ken worked with him to determine the real cost basis and respond to the Notice CP2000, the gentleman does not owe the IRS anything at all.