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>>I hope that summary is more clear<< I do not think it is clear. Maybe it makes more sense with the documents in front of you, because for one thing, I can't tell what 1099s were issued, when, or for what tax year. For another thing, I am confused by the original 2011 return referring to an undocumented rollover, and then responding to a CP2000 with a 1040X apparently restating the same position. I can't tell when or even if an RMD was really made. Frankly, I'm still not convinced that the IRA was actually maintained as an inherited IRA rather than being distributed in full. I'm not even convinced that's what the client intended to do. So I have to say that at this point the notice of deficiency sounds correct to me, at least in terms of failing to respond to the 30-day letter. Now I suggest you write out a timeline. Each step should have a date and a complete sentence, but the sentence should have no more than five or six words. Somebody sending something and somebody receiving the same thing are two separate steps. Stack all the documents in chrono order and mark each as Exhibit A, B, C, etc., and add a reference on each step. Those documents should include everything relevant--not just the 1099s and tax returns, but your organizer or interview notes, whatever the client signed at the credit union, the IRS letters and your replies, your telephone notes with client and IRS. You don't need to copy this thread, but you should consider the trust, will, and/or beneficiary statement. Meanwhile I think you should explain to the client about petitioning Tax Court (do some quick research first!) Trust me, the court will send this down to Appeals, but it might be the only way if AUR gives you idle promises or refuses outright to talk any more. Also discuss your client's other options, including just paying the deficiency in full or installments. (Presumably you can still get the penalty waived.) After all, it's going to be due in a couple of years anyway. Even if you win in the end, fighting the IRS is a big drag on the psyche. Oh, and don't forget the state return.

>>a very nice person on the phone... did not yet have the response... documented our conversation... we should wait... contact them again<< I'm sorry to keep hammering on this. Maybe I am paranoid, but in my opinion NONE of that has any meaning whatsoever after a Notice of Deficiency has been issued. Read the notice itself, all of it, and see if what the IRS put in writing agrees with what the IRS said on the phone.

>>All they have is what is reported within their system,<< They probably don't even have all of that. Like, our XP computers can't access the new 1099 database. You have to think like a bureaucrat: I don't actually know how to take notes. Last month they sent me to three days training on The New Shorthand. I'm already a week behind transcribing and can't remember what we talked about, so even I can't decipher it. My typing is lousy, especially on this ergonomic keyboard that idiot in IT salvaged when admin got their new offices. Well, my handwriting is worse. They don't let us use "personal items" like a decent pen. Besides, my supervisor was hired on some affirmative action program and can't even read English anyway. So don't expect whatever you tell me to show up in the record. It just says, Rep called--will send docs. Docs. That's it. Nobody cares about your explanation. What they want is something to scan.

Even more likely, he assumed that being still in his 50's, he had lots of time to do some tax planning. At least that is how most people think. Plus few people realize, unless they have been doing some tax planning, just how high the estate tax is. Having paid taxes on it as they earned it, they don't even dream that the government is going to take more than half of what they saved.

Jainen is correct on this handling. I have had 100% successful outcomes over many years when answering any correspondence with the IRS with this organized method. You must be succinct, very organized and get directly to the point. Make the trail of statements and documents being sent as organized and easy to follow as possible. Remember that the person on the receiving end hasn't had any clarifying conversations with the client or bank that you have. All they have is what is reported within their system, tax returns filed and your correspondence to make sense of it all.

Non attorneys MAY be admitted to Practice before the Tax Court, after they pass the rigorous and grueling Tax Court exam which is administered every two years in Washington DC. The pass rate is very low, about 4 - 6%. Enrolled Agents may represent the client once the Tax Court case is referred back to Appeals. Generally my clients, when filing their pro se tax court petitions, ask that for a case location at the local IRS Appeals Office. After the case is assigned a number, and sent to Appeals, the Appeals Officer has contacted me for appointment dates.

>>Any comments on advantages or disadvantages?<< There are entire books on this topic. No single answer is best for every combination. You need to work it out with the client, probably including subjective elements. For your technical question of basis, property gets a step-up if it is included in the taxable estate. (That's not the same as a probate estate.) Basis step-up is not always a good thing.

I agree with mcb39, jack and Bulldog

>>Tax courts are expensive << In my opinion, if you need a tax attorney, it is a good value. But Kea's client doesn't need an attorney. If he has to petition Tax Court it's only because he dinked around for a month before telling Kea about the CP2000. (Well, technically Kea wasn't available but that's no reason not to blame the client!) There is a $60 filing fee (waived for indigents). That's what I meant is a waste, because Tax Court will certainly refer this case back to Appeals. There is no question other than plain facts, so it all depends on what can be documented. It's possible that AUR will accept what has already been sent in, but if not then Appeals will take quick and decisive action. I would guess it would go in the taxpayer's favor, if only because IRS can't afford to litigate such small amounts unless there is evidence of tax evasion or some other big principle. My main worry is that Kea might not have been very clear--I barely followed the unfolding story. But Appeals gives you another shot at making your case, so if you can't prove it there, even a lawyer probably can't prove it in court.

>>Looks like I get to call IRS after all.<< You MIGHT still be able to resolve this over the phone, but don't miss the 60 day deadline! Even if the IRS promises to rescind the notice and process the 1040X or whatever, don't believe them unless you have written agreement. At this point your client has no actual right to amend or appeal or even request the waiver of penalty. Filing with Tax Court is the only true option. That's a waste of money, because Tax Court will just kick it back to Appeals anyway. Talk to your client about it, because he has to file himself since you are not an attorney.

What JohnH said!!

I've already changed my mind. When I was in my 20's, my heart caused my mind to lean Liberal. By my 40's, I discovered I had both a heart and a brain, which changed me to a Conservative.