The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: Alex356 on July 17, 2018, 06:15:43 PM
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Hello,
I finally made a tax mistake in 2016 return and forgot to add one of 1099s. Opening too many brokerage accounts has its downside. So, I got IRS CP2000 form asking to pay the difference, but the amount they "propose" to charge is $5xx while my own calculations via TaxAct suggest $2xx. Talking to them is impossible. What should I do? Details below:
The form says:
Changes to your 2016 tax return:
Securities: $ xx
Taxable dividends $9xx
Income net difference $9xx
Change to taxable income $13xx
Tax you owe $5xx (plus interest)
The main differences between their calculations and mine are:
1) We both agree on income net difference of $9xx. But they somehow move that number up to $13xx and call it "change to taxable income" with no explanation. Why?
2) They charge my qualified dividends at a higher rate. They admit that "you may be eligible for a lower tax rate since the dividends are qualified. Please respond and tell us of any needed changes..."
I've never communicated with IRS before. I am happy to send them back my calculations but trying to do it right first time to avoid further complications.
What am I missing? Why did they go up from $9xx "Net income difference" to $13xx "Change to taxable income"? What's the best way to proceed?
Thanks,
Alex356.
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Might be worth a read through various posts: cp2000 site:bogleheads.org - Google Search (https://www.google.com/search?sitesearch=bogleheads.org&q=cp2000).
In short, state your case as you understand it ought to be - if you are correct, it is likely the IRS will accept your explanation.
I can imagine a "Net income difference" leading to a somewhat larger "Change to taxable income" if you are in phaseout zones for various form 1040 "front page" deductions (e.g., student loan interest, tIRA contribution, etc.). A taxable increase ~50% larger than the net income difference seem high, but the only way to know for sure is to run the numbers. Good luck!