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IRS Notice CP2000 CPA tax accountant offers some tips on responding | IRS tax audit

IRS Notice CPA tax accountant. IRS tax audit accountant. Form 3115 instructions. Form 1099-C CPA. Rental property CPA. Rental estate property CPA. Landlord tax CPA. Schedule E CPA. Form 982 instructions. Form 1099-C instructions.

If you don’t have a local IRS Notice CP2000 CPA tax accountant, consider calling me for a free consult. We practice everywhere except HI. (910) 399-2705.

IRS Notice CP2000 CPA tax accountants work year round. Some tax audit CPAs say there’s a CP2000 “season”, but I haven’t found that to be the case. CP2000 is a common IRS Notice that proposes changes to an already filed tax return.  Common means over four million get filed every tax year. Generally IRS Notice CP2000 means the IRS wants additional tax. But sometimes CP2000 generates a refund. Sometimes it doesn’t change the tax due. I’ve been a Notice CP2000 CPA for years and I’ll present some suggestions on crafting a CP2000 response. I’ll give a CP2000 rental property cancelled debt case study too.

Do you need a IRS Notice CP2000 CPA tax accountant?

Maybe not. Here are some issues to consider:

  • Do you understand the CP2000?
    • There are no CP2000 instructions.
    • The IRS does publish some Notice CP2000 info online.
    • Here’s an example:
      • The CP2000 lists a W-2 that wasn’t on your original return.
      • If they’re correct, check the figures and pay them.
        • You just forgot to include that W-2 on your 2017 tax return.
  • IRS Notice CP2000 is an IRS audit. It’s the lowest type of an IRS tax audit, but a tax audit just the same.
    • I wouldn’t be paranoid about it bit it pays to proceed carefully.
  • Is there a refund?
    • If so, check the accuracy of their calculation and agree.
    • I’ve seen the IRS issue a refund and then want it back, after the Client spent it. Ouch.
  • Is the amount demanded small but incorrect?
    • Even though it is wrong, sometimes it’s just easier to pay it. Standing on principle is your choice of course.
      • Arguing with the IRS is frustrating and time-consuming.
      • Arguing with the IRS could open up other issues on the same tax return,
      • It could spread the IRS tax audit to other tax years.
    • CP2000 is computer generated.
      • How do I know? An IRS Agent called me one time and indirectly confirmed they use a fictitious Agent to increase taxpayer awareness.
    • I think IRS Notice CP2000 CPAs look at cost efficiency of their services. Or at least I do.
    • I weigh the IRS proposed changes on Notice CP2000 against my expected fee.
      • If I’m not cost efficient I give whatever advice I can and let the taxpayer handle it.
    • I listened to one potential CP2000 Client become enraged because she was “in the right” for a CP2000 proposed tax increase of $150.
    • If the amount is small, use common sense and due diligence but consider paying them even if they’re incorrect.
  • Are there other tax issues on your tax return that IRS Notice CP2000 doesn’t list?
    • A logical person would assume all issues in the CP2000 tax return are there.
    • But I’ve seen a few cases where the IRS sent Notice CP2000(s) over time, each addressing a different issue.
      • Sometimes we amend the tax return the IRS Notice CP2000 specifies.
    • As an IRS Notice CP2000 CPA tax accountant I suggest pulling all your IRS records for the tax year in question.
      • There’s a Get Transcript tool on the IRS website. It doesn’t always work.
      • You can mail a tax transcript request using IRS Form 4506.
      • Read the IRS 4506 instructions carefully.
  • Do you help reconstructing the CP2000’s tax documentation?
  • Are the same issues listed in IRS Notice CP2000 present in other tax returns?

“I think most IRS CP2000 CPA tax accountants try to contain the Notice CP2000 response to the issues listed. You really don’t want the IRS tax audit to expand into other areas of the CP2000 return or other tax returns.”
– Gary Bode, IRS Notice CP2000 CPA tax accountant

Case study; Client received an IRS Notice CP2000 listing a Form 1099-C, Cancellation of Debt, that wasn’t on her tax return

IRS Form 1099-C, Cancellation of Debt, reports debt forgiveness to the IRS. The amount in Box 2 becomes taxable if you can’t exclude it using the infamous Form 982, Reduction if Tax Attributes. She found the Form 1099-C instructions are for the bank. She didn’t understand the Form 982 instructions. There was no example in IRS Publication 4681 that directly reflected her particular tax issues. The CP2000 was for a tax return two years in the past.

The Client’s former boyfriend got her into owning a rental property, just before the Recession hit. They rented it out and a prior tax return showed rental income and expenses on Schedule E. She abandoned it when he left her and wasn’t making the rental property mortgage payments. So it eventually became a rental property foreclosure and rental property cancelled debt case. The IRS Notice CP2000 proposed a $17,000 +/- of additional tax.

  • Well, I helped her track down the original HUD statement.
    • So we knew what she paid for the property and the buyer’s expenses.
    • I find some landlord’s don’t include the buyer expenses in the basis of the rental real estate property. That means they eventually pay tax on thousands of dollars they didn’t have to. Ouch.
  • The Form 1099-C, Cancellation of Debt, listed the fair market value of the property as $26,000 +/- less than what she paid.
  • But the Court House records showed the actual sales price, from a Sheriff’s auction, to be $55,000 +/- less than what she paid for it.
  • She never claimed rental property depreciation.
    •  Form 4797, Sales of Business Property, requires the rental property landlord to recapture depreciation even if none was taken.
    • We circumvented the issue by filing IRS Form 3115, Application for Change in Accounting Method.
  • The deductible rental property foreclosure loss exceeded the rental property cancelled debt.

So, an IRS Notice CP2000 accountant turned this CP2000 Notice into a refund. All legitimate. But it took some leg work, experience and tax research.

Again I’m an IRS CP2000 CPA and offer a free phone consult at (910) 399-2705. We might play phone tag but once we connect I’ll give you my undivided attention.

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