CP2000 NOTICE AND IRS INCOMPETENCY

[Cathy]

You are confusing a correspondence audit, a desk audit, and a CP2000 notice. A CP notice is seen by no human eyes until a response letter comes in.

Joan, I've been doing taxes since we carved returns in stone...or it seems that way! I know the differences, believe me!

"A CP notice is seen by no human eyes until a response letter comes in." Sorry, but I can't tell you how much I disagree with you on that statement!

I have been told too many times by IRS agents themselves that is simply not the case. Please re-read my posts and if you still believe that a CP notice is seen by no human eyes until a response letter comes in, I have a couple of bridges I'll sell you for pennies on the dollar!

Just wait until you see the "new" layout of a CP2000 notice. They were recently changed to make it easier for the taxpayer to understand. They are a joke!

Take care,

Cathy

[joanmcq]

Then why did you use a desk audit as an example for why you believe a CP notice is reviewed before sent? I worked for years for a company doing nothing but CP notices 30 hours a week (before moving up to correspondence & desk audits) and know notices like the back of my hand. I've seen some doozies, including one where the decimal point on the 1099-SSA was missing and both the TP & spouse had, per notice over 1 million in missing Social Security income. That one was cleared up with a phone call, and both the AUR person & I had a good chuckle over it.

[jainen]

>>no computer could have come up with the figures in the notice<<

CP2000 is entirely computerized. The Automated Under Reporter unit, with only a couple thousand employees, sends out more than five million each year. It's just a quick match against three BILLION W-2s and 1099s. There is no way they could look at them, and no reason they should until the taxpayer has a chance to challenge it. After all, most of them (like your client's) are at least partly correct.

This is the "lowest" level of IRS correspondence audits. IRS puts almost no effort into them--another example of how IRS is shifting its audit process onto tax professionals. This is why they are usually so easy to resolve with a single phone call or letter. IRS knows that lots of these are wrong, even wildly wrong. But they just don't care because they also know we will deal with the client and assemble the documentation. That's our job.

As I said before, I think it's okay. I want IRS to catch people (like your clients) who don't report investment income, And I think a low-cost letter with a month to respond is the right way to do that.

[Cathy]

>>a local or state divorce decree certainly can't trump the Federal tax code. The splitting of employment and self-employment income absolutely makes no sense<<

It makes sense in community property states, where the court DOES determine how income must be allocated and reported on the federal return. That's in the federal tax code. And even though a divorce decree can not over-ride federal law, it DOES bind the two parties themselves in the way they must apply the law.

Yes, however, there are exceptions whereby Federal law can trump some state community property laws. In reviewing what you are faced with in California with the RDP situation, etc.. it made me quite nauseated! I'd rather face alligators any day in Louisiana than to face California's laws! Again, thanks for your input!

[Cathy]

Then why did you use a desk audit as an example for why you believe a CP notice is reviewed before sent? I worked for years for a company doing nothing but CP notices 30 hours a week (before moving up to correspondence & desk audits) and know notices like the back of my hand. I've seen some doozies, including one where the decimal point on the 1099-SSA was missing and both the TP & spouse had, per notice over 1 million in missing Social Security income. That one was cleared up with a phone call, and both the AUR person & I had a good chuckle over it.

Joan, I have no earthly idea how we have such differing views unless it's a matter of what is coming out of different regional offices such as the time when (for years) ALL of Louisiana's law enforcement personnel could work extra duty when in uniform and carrying a weapon and not have to pay any self-employment taxes until such time as another district learned of the "special memorandum" notice sent out telling those involved with Louisiana returns not to assess any more se taxes and to expect (and approve) amended returns for those Louisiana officers having paid se taxes in prior years....the other district (through their General Counsel) put a screeching halt to the automatic exemption from se taxes......who knows?

[Cathy]

>> I want IRS to catch people (like your clients) who don't report investment income >>

J,

After giving your comment above a great deal of thought, you are right! I also want my clients to be "caught"! The very idea that they didn't even open correspondence from a wedding gift years ago of a few shares of stock is appalling! The fact that both of them work and contribute over $20k of Federal income taxes each year is certainly no excuse for not having time to review each piece of mail they receive just because they are exhausted when they get home at night!

Furthermore, I think they both need to serve time in tax prison for not including the $19 of Qualifying Dividends on their 2012 tax return! The taxes that they were trying to evade ($2) could have been a partial payment to an individual who had no income taxes at all withheld and needed their $7500 refund to go to the casino a couple of times! That's the least my clients could do to be able to see someone else be afforded the luxury of having fun instead of working full time all year long!

Heck, I might just tell them that they do actually owe the $1k+ in taxes as suggested on their recent CP2000 notice! That will teach em!

Also, I might just "accidentally" leave off the interest they claim each year on next year's return just so I can make sure they are punished enough!

Now that my overtaxed mind has had a break (and a good laugh), time to get back to work!

Again, thanks for your input! Really...I'm sincere when I say that! Have a great day! ????

[joanmcq]

Cathy, the $19 of dividends is not the issue. It didn't generate the notice, would not generate a notice. However, when the 1099s come in with IMPORTANT TAX INFORMATION on them, your clients should open their mail.

[B. Jani]

It is absolutely true that client should open their mail marked important tax documents. I just got the new client due to CP2000 notice for 2011 and upon research found that they rolled over IRA directly from WellsFargo to MetLife. Wells Fargo issued 1099R with code 1 (eventhough it was a trustee to trustee transfer) and on top of it, the rollover amount was 16k but the 1099R shows 20k. (client whould have cought it if read the mail) When I told the client to go to Wells Fargo to correct the 1099R from 20k to 16k, Wells Fargo is giving him run around and do not accept that they transfered only 16k and not 20k. On top of that, the accountant who did the tax return ignored 1099R completely but did staple with the tax return copy. What can I say??????????????

[Lynn EA USTCP in Louisiana]

B Jani - does your client's 1099-R reflect any federal withholding? There might be $4000 of federal tax withheld to explain the difference between the $20,000 per the 1099-R and $16,000 rolled over to the new account.

[B. Jani]

No It does not. I thought the same. But this is a simple trustee to trustee rollover. Finally MetLife accepted the error and fixed both 5498 and I got the fax and they promised me that will send electronic confirmation to IRS. I will reply to CP2000 with the copy of corrected 5498 and hopefully IRS will close the case and reverse the tax, panelty, early withdrawl penalty etc amounting to 6+K.

The point in all this is that if client read the mail would have probably avoided the situation. People at Wells Fargo who issued 3 1099R are still do not accept their mistake eventhough there computer and statement shows that only 16k was rollover and account closed.

[jklcpa]

No It does not. I thought the same. But this is a simple trustee to trustee rollover. Finally MetLife accepted the error and fixed both 5498 and I got the fax and they promised me that will send electronic confirmation to IRS. I will reply to CP2000 with the copy of corrected 5498 and hopefully IRS will close the case and reverse the tax, panelty, early withdrawl penalty etc amounting to 6+K.

The point in all this is that if client read the mail would have probably avoided the situation. People at Wells Fargo who issued 3 1099R are still do not accept their mistake eventhough there computer and statement shows that only 16k was rollover and account closed.

Why is MetLife having to correct anything if Wells Fargo made the mistake, and what are they correcting the amount to? Is ML revising their 5498 to show the incorrect amount so that it will match the incorrect 1099R?

[Cathy]

Cathy, the $19 of dividends is not the issue. It didn't generate the notice, would not generate a notice. However, when the 1099s come in with IMPORTANT TAX INFORMATION on them, your clients should open their mail.

You are absolutely, positively correct, Joan! I think a couple of years in prison will (might) teach them to not only to open, but read their mail, as well! Seriously though, wouldn't our jobs be soooo much easier with that type of "penalty". Our jobs might not be as profitable, but they will be so much easier!

I found out "the rest of the story" today in regard to my original post....now I just need to figure out how I can edit the title! But since "Cathy" is not my real name anyway, maybe IRS will never connect me to my post. My REAL name is Paranoid! ????

[joanmcq]

So what is the 'rest of the story?' Btw, my criticisms are directed at your rant, because a. You were backwards on why they got the notice, blaming the $19, not the 1099-R, b. you blamed incompetent IRS employees, rather than bad programming. Or some other factor, of which I hope you enlighten us.