Today TaxMama® hears from Ninja in the TaxQuips Forum who got an IRS notice. Since her problem is universal, let me generalize her situation. “This is the time of year IRS starts sending out the CP2000 notices. These letters are computer-generated. The IRS computer compares your income to the information it has received from W-2s, 1099s, 1098s, etc. to the lines on your tax return. When a number is not on a line where the computer expects to find it, they send out a letter PROPOSING to assess you more tax. What should you do?”
Dear Ninja and friends,
Most of the CP2000 notices I see are wrong. You have reported the supposedly missing income somewhere on your tax return. Some are correct.
When the notices are correct, pay the balance due and move on with your life.
However, when they are wrong, respond to the IRS letter, immediately. You usually have about 30 days to respond. Be very specific when you explain where you reported the income.
For instance, in Ninja’s case, IRS was looking for the income on Line 21 of her Form 1040. She reported it as part of her gross income on Schedule C. In her case, she has a printout from TurboTax that shows the list of 1099-MISCs she included in her gross income. Include that printout with your letter.
In another case, IRS is saying some unemployment income wasn’t reported. In fact, the 1099-G shows that the amount not reported was Disability Income. IRS responded by requesting a copy of the 1099G. That was a surprise. They generated the CP2000 notice showing this information – don’t they have a transcript of the form in the system? So, don’t assume IRS has copies of forms – send them with your response.
Places you may have reported income where IRS can’t find it? You might have shown rental or royalty income on Schedule C as part of your business income, instead of on Schedule E, as passive income. You might have shown gambling income on Schedule C, considering yourself a professional gambler, instead of Line 21, where it belongs. You might not have shown distributions from your retirement plans or IRAs that you knew were rolled over – but the 1099-R does not show code G. IRS expects to see that income on line 15a or 16a.
In short, don’t be intimidated by the notice. You may have reported the income. But, be sure to respond right away.
And remember, you can find answers to all kinds of questions about IRS notices and other tax issues, free. Where? Where else? At www.TaxMama.com.
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