CP 2000 and amended return

[BulldogTom]

I am really bored this morning. I actually read the entire 10 pages of a CP2000 of a new client. I found out something new.

I have always approached an amended return the same way. It did not matter if it was a client seeing an error or the IRS telling them there was an error. Always file with the center where the original return was filed. If there is a CP 2000 or other correspondence involved, I take a POA and call the service to let them know I will be filing the amended return and give them a timetable on when I think it will be completed. It has always worked in the past.

But the CP 2000 has instructions on where to file if you are filing an amended return. I never saw that before. But then again, I have never read all 10 pages of the CP 2000 before either.

Is this new? I am a little antsy about sending an amended return to an examiner location rather than the service center. Should I just ignore the instructions on the CP 2000 or should I follow them.

BTW - it is a simple issue. TP had his Son In Law prepare the 2007 return on turbo and the S-I-L did not enter the 1099B. So the IRS wants taxes on total proceeds of the stock transactions ignoring basis. They want tax on 27K, but it comes out to only 2K in LTCG, $200 in taxes.

Tom

Lodi, CA

[mcb39]

I have had two of those this week. Both are for 2007; both are in regard to 1099R stock distributions not claimed and both want a reply by Apr 8. Just what we needed right now. I have had both clients gather info on cost of stock sold and have to prepare amendments also. One is a wash, the other is a loss. I haven't had time to read that far yet, but I guess I would send it where they want it sent or call them for further instructions. Maybe the info can be faxed. These are not actual bills; but rather requests for information.

BTW: I am not allowed to be bored this morning.

[kcjenkins]

Tom, I always did it that way myself, until recently. But I've responded to a couple now by sending the info to the address given, rather than filing a 1040X, and both were corrected promptly and smoothly. Both were 1099B issues, which were corrected by providing the basis info, and it got cleared up faster than filing a 1040X would have done.

[BulldogTom]

OK, I will compromise. I will send the info to the correspondence office, but it will include an amended return. I need to send CA an amended return also. I will also have the taxpayer include the check for the difference.

Tom

Lodi, CA

[kcjenkins]

Copied from another list, FYI:

At a Town Hall meeting, the IRS CP2000 folks made a presentation about this very subject. They ask that you "please" not send a 1040X, because this holds up the correction. That 1040X has to be processed in another section in the service center...just send the Schedule D and they will do the rest. Of course this means a correction to the state...But then again, they will send the correction to the State as well via their Fed/State agreement, but that choice is yours to get the process speeded up on the State side...

[BulldogTom]

Thanks for the info KC, but the fact that the IRS has to work harder is not my issue. I have to protect my clients best interest, and I don't feel that an updated schedule D is the proper way to reflect the correct tax that should be paid by the taxpayer. I will trust the IRS to do the right thing when I can see the back of my neck (thanks again Jerry).

Look at me, I am getting old and cranky, and I am still a young man.

Tom

Lodi, CA

[Jack from Ohio]

I totally agree with BulldogTom.

I will continue to send 1040X because I have seen too many cases where the IRS only corrects the numbers at hand, and not any other numbers that would change. Even auditors at an audit...

This particular audit, the auditor disallowed the claiming of the client's college daughter as dependent (not living with him, no HOH, etc), but when the the final audit report came out, the Lifetime Learning credit for that daughter, was still allowed and included.

I will always send the 1040X for a notice requiring a change.

[Randall]

Then there's a different address if you agree and are sending a check from the address if you disagree and are not sending a check. I had a recent situation where we agreed with some changes but not all. I advised the client to send a check for what I calculated with the agreed items. I didn't know which address to use. I chose one, can't remember off the top of my head, but I think it was the address to send with payment. Haven't heard back yet.

[JohnH]

For what it's worth, I don't send in a 1040X. I go back to the program for the year in question, enter the adjustments, and print a new return. Then I transfer the relevant info to a spreasheet which shows changes in income and/or deducstiond in roughly the same format as the 1040X, attach the spreadsheet and relevant forms or schedules (usually a Schedule D, and maybe a Schedule A or B since the majority of CP-2000's revolve around 1099B, DIV, INT, or W2-G), and send it in to IRS.

I generlaly do not reveal to IRS my recalculation of the tax. They have their numbers and I have mine. If theirs are greater than mine, we go another round. If their are equal to or less than mine, we accept the changes.

Commendations to Tom for reading all 10 pages of the CP-2000. I didn't know it was possible to read the whole thing without dozing off.

[joanmcq]

Ok, I am a professional CP2000 preparer and have done hundreds and hundreds (actually probably over a thousand by now) of these. Never, ever, ever file an amended return to some other service center without addressing the corrections to the AUR unit. The AUR unit sent the notice, the AUR unit needs to know you are responding so Notices of Deficiency don't get issued. Also, don't do a frikkin 1040X. What we do is a corrected 'worksheet' return. Give them, for example, a new sch D & 1040 & maybe an A if the income or loss changes. If long term capital gains are involved, calculate the tax, since this is one thing the AUR unit gets wrong a lot. Write a letter and explain what changes. You are not helping out just the IRS, but your client as well, since the quicker and easier one of these gets cleared up, the better it is for everyone. If you screw it up and have to send it through audit recon its a lot more work on your part, and just because you are too lazy to read the notice? Would you ignore an invitation to an office audit and just send a 1040x? And remember, most of these things get issued because of a screwup on the client's part (like not reporting securities) not the IRS's part, even if it means like if the stocks sold at a loss, it ends up being to the benefit of the client that they got the notice.

[BulldogTom]

<<<and just because you are too lazy to read the notice?>>>

I did read the notice - all ten pages. Please see my original post :0)

The notice does say that I can send an amended return. It says to send it to the address on the front of the notice, which I am doing.

I appreciate what you are saying joanmcq. However, my distrust of the IRS runs deep. And I know that if I send in an amended return, I am in a better position should the IRS audit at a later date. The CP2000 is just a mis-match on information that they have in the system. It is a notice that something is not matching up. And since the 1040X now has a foreign tax credit that is available to the client now, it seems to me to make more sense to present a complete and acurate return to the IRS with all schedules and attachments that prove the positions taken on the "new and improved" tax return.

In the future, if it is a very simple change, like a small W2 the client forgot about, I will consider your advice. But for this particular client, I think I will send in the 1040X (which the notice clearly says I can do) and go from there.

Thanks for the reply.

Tom

Lodi, CA

[Jake]

When I respond to a CP2000 notice I usually prepare a 1040X and all of the supporting schedules. I do label the 1040X in a red pen "work paper do not process". I also include in the cover letter a statement indicating that the 1040X is included as a reference only and it is not to be processed. This was the procedure suggested by an IRS employee at the year end update seminar that I attended last year. He also suggested that we, if at all possible, use the original mailing slip and return envelope that the IRS provides when replying to the notices. Since I have been doing this I have noticed that the notices are being resolved in a more timely fashion. The only time that I could see the benefit in filing an actual 1040X in response to an IRS notice is if the IRS assesed addional tax as opposed to merely proposing additional tax.

[joanmcq]

Yes, if the tax has been assessed it is often necessary to file a 1040X. what you are doing (although the X form really isn't needed) is to file a dummy return with the changes made, and yes, marked with 'worksheet' or 'workpaper' keeps it from going to a unit for processing. My emphasis on these posts was to please dissuade anyone from not answering the AUR unit and just filing an amended return to wherever their X's go. That is of no service to your client. Sending an X to the service center while also addressing a response to the AUR unit will also gum things up.

Tom, I wasn't referring to you when I made the comment about being too lazy to read the whole notice; it was addressed to all the posts below which stated they did NOT ever read the darn thing. It only takes a minute or two; pages 1-4 don't ever change except perhaps year to year and the address of the particular service center, so you only need to read them once a year, and the rest tell you exactly what is being addressed by the notice. I really can't see how sending in an X in response to a CP notice would help or hinder you if you are later audited. You can add things that are affected by the notice, for example, the FTC when missing dividends is the issue, without amending. And, as with an X, you only send the forms & schedules that are changed by the corrections; you don't re-file the whole return unless the whole thing is changed.

And DO amend the state return once the federal notice is agreed to. I've seen far too many state notices resulting from not accounting for the changes at the state level. And even if there is no effect, I've often seen state notices which pick up on the initial CP proposed changes or audit changes without taking into account the final result, so save the federal response!!!