Tax Examination (2010) and CP2000-Understatement (2011)

[PundaSmith]

What is the name of your state (only U.S. law)? NJ

Hello,

I am currently dealing with two seperate notices from IRS and need some help / ideas.

2010 Examination (Mail Audit): About 6 months ago, requested documentation from me pertaining to my 2010 tax return - their reassessment claims I owe $4,000, and they already sent me a Notice of Tax Deficiency when I was out of the country. I am still trying to gather all my documentation, but they claim they can't wait any longer, so I am about to accept their reassessment, and agree to a payment plan since I don't have the lump sum to pay. But they told me that I can always provide further documentation and ask them for reconsideration.

-- Is this a good idea to propose the payment plan, and if accepted start making the payments, pending further review of the documentation I am gathering?

2011 CP2000 Understatement Notice: I just received a notice for undeclared income. I recall giving the 1099 form to the fellow who prepared my taxes. He claimed he included it, but for some reason IRS never received the information. IRS now claims I owe $15,000. Now, it gets tricky here. The income they stated is correct - since there is a 1099 for that. But I believe I have more business expenses and other deductions than I originally claimed on the 2011 return. I plan to disagree with their changes partially, and explain the circumstances why the income was not included, and then offer the additional business expenses. But I believe I will still owe some money: So, I have two questions:

-- should I fill an amended tax return for 2011, including the new income and business expenses and wait for their evaluation, and then settle the balance due with an OIC (Offer in Compromise)

or

-- Should I just accept their changes and settle the $15,000 with an Offer in Compromise. I completed their pre-qualification, and based on my income and family-size and few assetts, they claim I qualify.

I appreciate your thoughts ...

thanks in advance - SP

 

[tranquility]

I think you should have done your taxes correctly in the first place. Also, when you received your return from the preparer, you should have reviewed it to see if it is correct.

Strategy?

First thing is to do a proper return that can sustain an audit. (As, you are in a place they will no longer just accept your representation.) After you get that, you know where you actually stand and what avenues you might explore. If this takes more time than the IRS allows, ask them for more time. But, an OIC for undisclosed income is very suspect. Especially when the amount is $4K. Why would they take it? You don't have $4K worth of stuff or the ability to earn it (After the meager amount they give to let you live on.) in 10 years?

 

[PundaSmith]

Thanks very much, Tranquility: I certainly bear the responsibility. I agree that OIC will be hard to get with $4K. But I rather was going to request OIC for the 2011 taxes (the $15K). Would that be a bit more plausible?

rgds, SP

I think you should have done your taxes correctly in the first place. Also, when you received your return from the preparer, you should have reviewed it to see if it is correct.

Strategy?

First thing is to do a proper return that can sustain an audit. (As, you are in a place they will no longer just accept your representation.) After you get that, you know where you actually stand and what avenues you might explore. If this takes more time than the IRS allows, ask them for more time. But, an OIC for undisclosed income is very suspect. Especially when the amount is $4K. Why would they take it? You don't have $4K worth of stuff or the ability to earn it (After the meager amount they give to let you live on.) in 10 years?

 

[davew128]

Thanks very much, Tranquility: I certainly bear the responsibility. I agree that OIC will be hard to get with $4K. But I rather was going to request OIC for the 2011 taxes (the $15K). Would that be a bit more plausible?

Not in a million years. They have TEN YEARS to get the money.

 

[LdiJ]

Realistically you need a tax professional helping you deal with this whole mess. This is not something that you should be attempting to handle on your own. On top of that please realize that the IRS will NOT consider an offer in compromrise (OIC) if they believe that they can collect from you within the statute of limitations.