CP 2000

[ra12]

I received CP2000.

In 2008 I was enrolled in flex account and received $4000 after submitting daycare expenses receipts.

Total money I spent was $6900 on daycare in 2008. I did not report flex spending $4000 in the tax return.

I reported only $2900 which i spent above 4000.

Now Received CP 2000 asking about tax on $1100.

What should I do now? Do I need to refile taxes.

[NECPA in NEBRASKA]

You will have to change the 2441 and report the entire $6,900 that you paid to daycare. I haven't seen the CP2000, but you will probably have to file a 1040X.

[Lion EA]

Prepare Form 2441 both pages reflecting the monies that were reimbursed by your flex account and should not be added to income as well as the excess upon which you took a child care credit. Call the number on your notice to see if you can fax them Form 2441 to clear up the matter.

If your tax calculation was correct, but Form 2441 was not complete, then that should do it. If the $4,000 showed on your W-2 but not your Form 2441, then they are adding that amount back into your wages and charging tax on it.

Call with a separate fax available (use your cell at Kinko's if you have to) so you can remain on the line until they receive your fax.

[BulldogTom]

How many children? Limited to 3K for one child or 6K total if more than one child. You have claimed too much child tax credit if you claimed $2,900.

Tom

Lodi, CA

[ra12]

How many children? Limited to 3K for one child or 6K total if more than one child. You have claimed too much child tax credit if you claimed $2,900.

Tom

Lodi, CA

Only one

[BulldogTom]

With one child, you are limited to 3K, and since all of that was paid by non-taxable income, there is no credit. You will have to repay the amount you claimed as a credit on your return.

Tom

Lodi, CA

[SaraEA]

If you did the same thing in 2009, I'd amend that return ASAP. You can indeed take up to $5k out of your flex plan for care for one child. On your income tax return, however, you're only allowed credit for a maximum of $3k. All of that was paid with pre-tax dollars, so you're not entitled to any further credit. If $3000 seems low for child care, consider that the max was set at $2400 until Congress upped it just a few years ago. Paying the expense with flex dollars is your best bet. In your case you can't take a credit on your tax return, but you don't pay federal, Social Security, Medicare, or state taxes on the amount--likely saving a whole lot more than you would have saved with the credit.

[Lion EA]

Good catch. I skimmed right over the numbers, thinking the only problem was the W-2 amount not reported on the 2441. When you fill out 2441 for one child, the flex dollars will be allowed, but with one child, no additional credit; and I see you claimed an additional $2,900 in child care that won't be allowed when you fill out the form completely and correctly. So, yes, you will owe additional tax. If after correcting Form 2441, you agree with the IRS amount, pay it quickly to stop the interest. If you do not agree, call them to ask if you can fax a corrected Form 2441 to them for them to recompute the tax you now owe, or Form 2441 with Form 1040 pages 1 & 2 to show them what the tax should be. I also agree that you should amend any other open years with a similar mistake ASAP to keep interest from continuing to run up.

[jainen]

>>repay the amount you claimed as a credit on your return<<

According to the original post, the CP2000 is apparently only asking for ordinary tax on $1100 income. That may be little more than $300, compared to at least $580 for the credit. If so (although I would not have recommended filing the return incorrectly) the all around easiest and cheapest thing to do at this point is just sign the letter and mail it back with a check.

I would of course advise the taxpayer of the implications of a prior year error, i.e. interest at the federal rate, but I would certainly not say "you should amend." In my opinion, the taxpayer has no particular statutory obligation to correct an honest mistake.

[Lion EA]

We as Circular 230 preparers only have to point out errors to our clients, suggest remedies (amendments, for instance), and inform of the consequences if left as is. The client decides what he wants to do or not do.

[ra12]

Only one

I have two children, but paid all daycare expenses to one child.

So I am assuming $3000 limit will still apply.

[Lion EA]

Yes, qualified expenses of $3,000 or less per qualified child (up to two children); so your limit is $3,000. That was covered by your flex plan, so no additional child care credit on your return. You do need to include Form 2441 with your return to be able to exclude your flex benefits from being added back into your wages.

[ra12]

Yes, qualified expenses of $3,000 or less per qualified child (up to two children); so your limit is $3,000. That was covered by your flex plan, so no additional child care credit on your return. You do need to include Form 2441 with your return to be able to exclude your flex benefits from being added back into your wages.

There are 3 parts in the form 2441 ; After completing part 1 (with corrected information)

it says go to part 3 if we received dependent care benefits.

On part 3 line 33 says if 0 or less stop; Since it is less than 0 I stopped.

Do I still have to complete part 2? ( perticularly line 3 to 13)

[Lion EA]

Part 2 identifies your qualifying child(ren) and amounts spent on each that were not reimbursed. I realize for one child, it could be a repeat of Part 1 amount re your provider, but I'm guessing the IRS wants confirmation that you spent for care of a child living with you and wants that child specified. And, if you would have excess spent to be able to take the credit as well as the benefit, the three parts work together.

[ra12]

After sending the 2441, what are the implecations if IRS does not agree with it?