IRS CP2000 income under-reporting

cabrerva · February 2014

Hello All,

Hubby received a CP2000 notice from the IRS for income under-reporting. His SIL prepared the taxes and royally underreported about $23,299 in taxable income. I am not a tax expert - or familiar with taxes at that. It's not really a surprise, because last month we called the IRS and found out they were going to be sending out paperwork on this.

Basically he (we) now owe a whooping $2K

His SIL prepared the taxes with some free software, and we don't have any forms to compare back to this. (Not sure we will be able to even log in)

I'm not planning on us disputing this- frankly because it just looks as if she didn't report the proper amount, so there is nothing to dispute in this type of situation...

I see they have listed interest as $51.00. We have been on the phone with the IRS for 40 MINUTES!! Trying to figure out whether this will be charged on top of every monthly agreement, or if it is a one time charge. I also want to ask whether any penalties may be assessed.

Our next step is to set up a payment plan, ad hope and pray we get some sort of return with this year's taxes, so we can pay it right back.

Any ideas or feedback greatly appreciated.

hoffse · February 2014

Let me first be very very excruciatingly clear that this is not tax advice. It's also not legal advice.

But speaking in generics, I generally live by the rule of, "If the IRS writes to me, I write back." You would not believe the ridiculous number of people who have walked into my office, dumped a pile of letters on my desk, and then said, "Hey can you fix this?" And I see that the IRS has been writing to them for 6 months, and they simply haven't bothered to answer.

If you can get a person on the phone who knows what they are talking about, very often they are willing to work with you. It takes some persistence, but owning up to the mistake, apologizing, swearing you'll never do it again, and then offering to pay is something that I don't think the IRS folks hear very often. I've never encountered an IRS person who was unpleasant. They're just busy. And they're used to people calling them and reaming them out. If you are pleasant and honest, it will be a nice change for them and they are more likely to work with you.

As for the penalties/interest, I can't answer that for you. Just try to be patient and see if you can get an answer.

Now some anecdotal evidence that will hopefully make you feel better. My dad gets audited relatively often. It's because he drives 180 miles round-trip once a week for research with his job (he's a college professor). He's able to deduct that mileage. Every few years the IRS audits him over that mileage. He immediately writes back explaining the deduction, and then it's over and done with. My point is open communication is key. It sounds like you're doing everything you can do. Just be persistent.

Best of luck to you. And let this be a lesson about having somebody other than yourself preparing your taxes. Realize that when you sign the form, you're attesting to its accuracy, whether you have checked the numbers or not. I assume your SIL is a CPA, and that's why she prepared your taxes. Some CPAs are great, others are terrible (I tend to encounter the terrible ones when clients are in tax trouble, so it makes me a bit wary). Finding a good one can be worth their weight in gold, but bad ones can cost you a small fortune. This is a pretty expensive lesson to learn, but I really do hope that what they have quoted you is the end of it. I'm sorry you're going through this. I know it's really stressful.

cabrerva · February 2014

Thank you! First off, his SIL is not certified, or a CPA. We were not married then, and he got suckered in into doing them with her for cheap (even after I advised against it- big mistake!)

I was able to solve a lot on the phone though. We are always polite and reasonable, so that helped a lot. DH gave permission for me to speak on his behalf. We found out that all of this happened because she forgot to add ONE number to the Taxable Wages amount. So because of literally one decimal place, we will be penalized for thousands of dollars- sweet! Upon examining the tax documents, I also found out that the SIL had listed my husband received over 6K in Dependent care benefits (false) and the IRS person knocked it off the grand total since there was no documentation to support it.

In any event, I feel -somewhat- better that the amount was reduced. Now we have to wait for the IRS to send an updated CP2000 and then we can set up payment arrangements. When we file our taxes for last year, if we get a return it will be applied to that first, hoping for that!

This year I'm going with my Father's tax guy, who has been preparing his Business' taxes for over 12 years- as well as mine while I was in college. I guess the only good thing that will come out of this is he knows to listen to me next time!

hoffse · February 2014

Yikes, that seriously frightens me when I consider what other sorts of mistakes like that she might have made...

It sounds like you guys have made great progress. It's nice that they are working with you, and VERY nice that they are knocking off those dependent care benefits without an investigation or anything. The IRS is really not as big and scary as people tend to think. I suspect their reputation comes from dealing with really angry people on a day to day basis. Frankly, that would put me in a bad mood too.

It's also good to hear that you guys have a tax person you trust. I swear, I see so many really really bad situations - and then the accountants are just awful to deal with (losing paperwork, deducting things they have no business deducting, etc.) - that I actually keep a private list of accountants I will never ever use in this area. I'm not the only lawyer who keeps these lists (and I suspect the accountants keep similar lists about us!) We don't need one yet because our taxes are easy, but if we ever have business income it's going to suddenly become a lot more complicated. As my list gets longer, I'm starting to worry that I won't find one I trust who is local when the time comes. The ones I've really liked all live a couple hundred miles away. If your dad's tax person is good, stick with him. It's seriously not worth the risk to try somebody new.

And I would totally not be above using this against my husband, the next time he has an idea that gives me a hinky feeling. It's like that time my husband called me from New Orleans, the day after he was at some Mardi Gras parades. He informed me that he woke up with no wallet, no cell phone, and no keys, in a place he did not recognize. This was about 8 years ago, and I still remind him of that moment when he has one of his "really spectacular ideas."

If your husband starts to complain about the tax guy's fees and wants to cheap out again, remind him of this!

moonprincessd · February 2014

And this is why we let a professional do our taxes...

jtmh2012 · February 2014

And this is why I do my own taxes.....

smerka · February 2014

If a person you are paying to prepare your taxes has you sign the return as Self Prepared, this should be a huge red flag. Most legit tax preparers have a PTIN, which means they are registered with the IRS as a preparer. There was recently a push to make everyone with a PTIN take a competency test, but the IRS lost the case with the Supreme Court. This time of year it is not uncommon to have to wait a long time on the phone to talk to someone at the IRS. They are understaffed. We have heard rumblings that they plan to look at 60% of returns this year, which seems crazy to me. To the OP, if you can have your dad's tax guy look over the return in question, you might find some deductions or credits that your SIL missed. I agree with Hoffse in that the IRS isn't that scary if you respond to them when they ask and are proactive. They get irritated when you blow them off.

cabrerva · February 2014

The woman I was able to speak to was very friendly. (EDIT, the IRS woman)

We can't get anything else taken off the bill because she (EDIT: hubby's SIL) forgot to add a digit and therefore severely underreported his income...

On the flip side we just filed (with my dad's Business Accountant/Tax guy, and with what we will receive, we will cover most of the bill, so that is good news!

cabrerva · February 2014

Haha, I cannot blame you! I am way too occupied with helping my 15+ client's finances, I don't mind paying $75.00 to this guy, he is a professional. He also gave me a lot of good financial advice (his wife and him have been married for 30 years) Our family is really lucky to have access to him. I had to wait 2+ hours to see him, since I live 1hour away. That was the downside, but I feel 100% secure on the work he did. Plus right now our taxes are clear cut, but once we begin to have other things to itemize, it will pay off to have a pro do it. I guess it depends on personal preference and what is available to you.

cabrerva · February 2014

Yup, agree x100.. He knows better now! I wouldn't have allowed it if we had been married.

cabrerva · February 2014

Funny things is this Tax person charged the same amount, and gave me a lot advice. He took his time to explain everything to me. It's obvious, when someone is a professional at something it shows!

IRS CP2000 income under-reporting

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