Responding to a CP2000 letter with a 1040X

[Chowdahead]

This is always a perplexing one for me...  I have a client who neglected to tell me he somehow has 2 Uber driver accounts.  So the IRS recently sent him a CP2000 owing over $15k, including a "substantial tax understatement penalty" of just over $2k doe not reporting a 1099-K and 1099-NEC related to the 2nd account.  The letter provides an option to either agree with the changes or disagree and submit evidence.  Response can be mailed or faxed.

Well obviously he needs to file a 1040-X because none of his expenses (i.e. ALOT of mileage and Uber fees) were reported on his original return, so he will owe a lot less.  My question is, should I e-file the amendment, or fax the 1040x it with a copy of the letter?  Or do both?

Finally, should the CP2000 be referred to in the 1040X explanation?  

[BulldogTom]

Isn't there a spot on the response form for "agree in part"?   

What I would do if it was my client is prepare the X to calculate the amount due.   Send in the amount you calculated with the response form and an explanation of what you calculated.   Don't send in the X as it will cross paths with collections.   You may have to wait for the final assessment to appeal if they don't accept your explanation.  

Get your POA in as soon as you can (make sure you mark the box to be copied on correspondence) and attach the signed copy of it to your response form when you send it in.

Others may disagree with this approach, but I think it is quicker than mucking up the works with an X.  They are waiting for a response, not an amended return.

Tom
Longview, TX

[Lee B]

I agree, filing a 1040X is not the correct response.

[BrewOne]

If you think a 1040-X may help clarify the situation, you can write on the top of it "DO NOT PROCESS--FOR COMPARISON PURPOSES ONLY"

[BulldogTom]

2 hours ago, BrewOne said:

If you think a 1040-X may help clarify the situation, you can write on the top of it "DO NOT PROCESS--FOR COMPARISON PURPOSES ONLY"

Back 20 years ago when we had competent IRS processing agents and an effective PPL, I would have agreed with you.   I would rather get a Notice of Deficiency and file a tax court petition than to send in a tax form that I don't want them to process...

Tom
Longview, TX

[Patrick Michael]

2 hours ago, BrewOne said:

If you think a 1040-X may help clarify the situation, you can write on the top of it "DO NOT PROCESS--FOR COMPARISON PURPOSES ONLY"

I have included a completed Sch C ( including related forms , if necessary) and 1040X with "DO NOT PROCERSS. SUPPORTING INFORMATION ONLY" written in large letters on the top in the past with no issues.  Have also done this when clients have forgotten to give 1099-B's.

[Catherine]

Send in the "agree in part" and send in any specific schedule (such as C, with auto worksheet, overall tax calculation too maybe) that supports the disagreements. Nothing else; don't send a 1040X or even a full amended 1040. Because what Tom warns of is real.  Give them enough information so that the only sensible action for them is to agree with you, but not enough that a new-hire ninny could make worse trouble. 

[RitaB]

I would fax a very short cover letter, the "agree in part," section, and the 1040-X to the fax number provided on the Notice CP2000.  The one I'm looking at from December 2022 says at the bottom of first page to write "CP2000" on top of the 1040X and attach behind the rest.   I would do exactly as they instruct on that one; it also happens to be the easiest thing for me, and I would think the most readily understood for everyone.