Letter from the IRS

[DonB]

Follow up: As mentioned above I had my newly hired CPA go over my 2018 tax returns due to the CP2000 notice I received in early December 2020. I also had him look over 2019 as I felt the same type of error was made here as well. in the end I ended up writing both State and Fed check for both tax years.

I have since filed my 2020 taxes using the same CPA that helped my with my CP2000. I ended up with a refund for both State and Fed and have in fact already received my Federal refund (still waiting on State). Today I received a CP3219A from the IRS for 2018. The amount is the same as the “penalty“ calculation from the CP2000 for 2018. But having filed a 1040X I had shown the tax deficiency was not what they calculated it to be. I figured I couldn’t escape the “penalty“ but I would have guessed the amount of said penalty would have been corrected/adjusted based on the amended 2018 return?

i have not yet been able to speak with my CPA but I have emailed him and am awaiting his response. This evening I also created a login with the IRS to see what clarification I might find. On the homepage it’s shows “account status” and ”total amount owed” as $0.00 (tax years 2017-2018-2019-2020). Needless to say I’m a little confused. As always feedback and comments are wanted and welcome. I also though it important so anyone else that comes across this thread gets as much information as possible.

 

[adjusterjack]

I wouldn't count on your account on the IRS website being up to date. I had a recent inexplicable direct deposit that had nothing to do with my returns or stimuli. I checked my account on the IRS website. Nothing about it, no sense trying to talk to anybody. If they ever want it back I'll just send them a check.

 

[Taxing Matters]

Today I received a CP3219A from the IRS for 2018. The amount is the same as the “penalty“ calculation from the CP2000 for 2018. But having filed a 1040X I had shown the tax deficiency was not what they calculated it to be. I figured I couldn’t escape the “penalty“ but I would have guessed the amount of said penalty would have been corrected/adjusted based on the amended 2018 return?

What is the particular penalty being proposed and how long ago did you amend the 2018 return? Did you receive any correspondence regarding adjustments to the 2018 return based on your amended return.?

 

[DonB]

What is the particular penalty being proposed and how long ago did you amend the 2018 return? Did you receive any correspondence regarding adjustments to the 2018 return based on your amended return.?

The CP2000 was dated 12/07/2020 and suggested I owed $16,860 in taxes, substantial underpayment penalty $3,372, and interest $1,643. The amended return was sent 12/17/2020 along with payment of $2,769 based on amended return. I’ve received no correspondence from the IRS past the CP2000 and today’s notice. The check for $2,769 was processed by my bank on 12/24/2020 (In fact all payments/checks have been cashed by State and Fed for the 2018 and 2019 amended returns).

Todays CP3219A seems to be for the “penalty” of $3,372 which is calculated from the taxed owed but is based on the same “taxes owed” of $16,860. Hopefully that gives you the clarification you were asking for?

 

[Taxing Matters]

The CP2000 was dated 12/07/2020 and suggested I owed $16,860 in taxes, substantial underpayment penalty $3,372, and interest $1,643.

The penalty for substantial understatement of tax is imposed by IRC §§ 6662(b)(2) & (d). Very generally the way it works is that if the amount of the tax that was shown on the return is less than 90% of the tax that was supposed to be shown on the return then there is a substantial understatement of tax. The penalty for that is 20% of the understated tax. In your case, it appears the IRS determined that there was an understatement of tax and the understated amount was $16,860. Twenty percent of that gets you the penalty amount of $3,372. If the proposed adjustment of $16,860 is reduced by the amended return then the penalty amount would need to be adjusted, too.

The amended return was sent 12/17/2020 along with payment of $2,769 based on amended return. I’ve received no correspondence from the IRS past the CP2000 and today’s notice.

Even before the covid-19 pandemic the IRS stated that it could be up to 90 days to get a reply to an amended return, and in practice that sometimes took even longer depending on the time of year the amended return is submitted and what the issues are on the return. The pandemic hit the IRS particularly hard given the restrictions that had to be imposed for social distancing, etc. While field employees (e.g. revenue agents and revenue, revenue officers, IRS attorneys) and some headquarters personnel could do at least a good chunk of their work from home, it was a lot harder to make arrangements for work for taxpayer service and service center employees. The Service Centers had the additional burden of having to assign personnel to handle the stimulus payments that Congress has kept demanding it make. The result was that the IRS, and the Service Centers in particular, got really backed up. Even today, the Service Centers have not finished processing all the 2019 returns, and now the 2020 returns are coming in. The CP 2000 program is an automated system run by the Service Centers. Processing amended returns is also a Service Center function unless you provide the amended return to an examiner/agent in the course of an audit.

When you submit an amended return to the Service Center the Service Center will send you a notice of its determination on your amended return. Until it has made that determination and processed the return its regular automated systems keep chugging along. It's now been 91 days since you submitted the amended return and you've not received a letter stating the outcome of the processing of the return. That suggests that the IRS has not completed that process. Note that the penalty may require an extra step as that penalty is not always automatically adjusted by the computer and must be done by an IRS employee. But while that is going on, the computer still thinks you've not responded and spits out the statutory notice of deficiency (SNOD), CP 3219A. See the IRS explanation of that notice. The key thing about the SNOD is that once it is issued you have 90 days to protest the determination in the letter to the U.S. Tax Court. The IRS cannot change or extend that time, it is fixed by law. If you fail to protest in that 90 time period then you forfeit your right to go to Tax Court and the IRS may move forward to assess the tax, penalty, and interest stated in the notice. The IRS can still adjust your return after the 90 days, however. But if the IRS refuses to accept your amended return then your only remedy left to challenge the decision is pay the entire liability, file a claim for refund, and if the IRS denies the refund claim, file a complaint in either U.S. District Court or the Court of Federal Claims. The U.S. Tax Court is only avenue to protest the adjustment without first having to pay what the IRS says you owe. It is also a court made up of judges who are tax experts; the district courts and Court of Federal Claims are (with some exceptions) not tax experts but are experts in federal law generally.

You don't need to rush out today and file that petition with the Tax Court. But you need to keep the 90 day deadline (and the date by which you must file will be stated in the letter) in mind and consider filing a petition if that time is getting close to running out and the matter is still not resolved. Doing that will preserve all your options. I suggest you respond to the latest letter, note that you filed an amended return which if accepted would lower the tax owed significantly, and ask for information on the status of that amended return. Include a copy of both the CP 3219A and the CP2000. If you don't hear anything from the Service Center in 30 days after that, then my next step would typically be to contact the Taxpayer Advocate Service (TAS) for help since you are on a 90 deadline and need to make a decision about whether to file anything with the Tax Court. Your CPA may have different recommendations. Just remember, though, that if you have any interest in preserving your Tax Court rights you need to get a resolution before the 90 days runs out.

 

[DonB]

You don't need to rush out today and file that petition with the Tax Court. But you need to keep the 90 day deadline (and the date by which you must file will be stated in the letter) in mind and consider filing a petition if that time is getting close to running out and the matter is still not resolved. Doing that will preserve all your options. I suggest you respond to the latest letter, note that you filed an amended return which if accepted would lower the tax owed significantly, and ask for information on the status of that amended return. Include a copy of both the CP 3219A and the CP2000. If you don't hear anything from the Service Center in 30 days after that, then my next step would typically be to contact the Taxpayer Advocate Service (TAS) for help since you are on a 90 deadline and need to make a decision about whether to file anything with the Tax Court. Your CPA may have different recommendations. Just remember, though, that if you have any interest in preserving your Tax Court rights you need to get a resolution before the 90 days runs out.

Lots of great information, thanks! What I’m going to do is wait to hear from my CPA and compare to what you have stated. I will also mention that I also received two of the same letter AUR control number and all contained in the letters are the same. Just the number below a barcode are different (one ends in 20181 the other 20182). Now that I’ve taken you comments to mind I’m hoping what happened is these events were simply like to ships passing in the night. I had something similar happen with the 2018 amended State return. I owed and paid them $2376.30 based on the amended return and also completed my 2020 returns. I was due a refund of $1138 from the State for 2020, they applied that towards what they showed as balance due. I know this because I have recorded how the numbers changed over several weeks and also spoke with a FTB employee (they were very nice by the way). Anyway now my balance with the State shows $0.00 and I expect I’ll see my refund soon based on what I was told. Perhaps this is similar to how the situation with the Fed will work out?

 

[aldaron]

"The amount is about $16k in taxes and about $5 in interest and penalties". Really folks, $5 in interest and penalties you're sweating over? I can only dream of having your problems. I'd send $5 to the IRS just so Biden could have some memory pills.

 

[Taxing Matters]

Really folks, $5 in interest and penalties you're sweating over? I can only dream of having your problems. I'd send $5 to the IRS just so Biden could have some memory pills.

If you had read the thread all the way through you'd have seen that the amount of interest and penalty involved here was approximately $5,000, i.e. $5k, not $5. The OP simply made a typo of leaving off the k in his/her initial post. In addition to that, there was significant taxed owed. So no, this was not just over five bucks.

 

[LdiJ]

Lots of great information, thanks! What I’m going to do is wait to hear from my CPA and compare to what you have stated. I will also mention that I also received two of the same letter AUR control number and all contained in the letters are the same. Just the number below a barcode are different (one ends in 20181 the other 20182). Now that I’ve taken you comments to mind I’m hoping what happened is these events were simply like to ships passing in the night. I had something similar happen with the 2018 amended State return. I owed and paid them $2376.30 based on the amended return and also completed my 2020 returns. I was due a refund of $1138 from the State for 2020, they applied that towards what they showed as balance due. I know this because I have recorded how the numbers changed over several weeks and also spoke with a FTB employee (they were very nice by the way). Anyway now my balance with the State shows $0.00 and I expect I’ll see my refund soon based on what I was told. Perhaps this is similar to how the situation with the Fed will work out?

There is another thing that you can do as well. On the search engine on the IRS website type in "where's my amended return". You will get a tool that will tell you whether or not the IRS has received your amended return and what it's status is. If it shows that they have received the return then you will know that they have at least opened the mail and logged in the return. In that instance you will know that it is just a matter of time before it's fully processed. If it is not showing as received, then you will know that they either never got it or that they haven't even opened the mail yet.

 

[DonB]

Final outcome.

Thought I would take a moment and post what the final outcome. As I mentioned when I started this threat I received a CP 2000 from the IRS stating I owed $21K in taxes/interest/penalties and I immediately went into panic mode, LOL. I posted my situation here and received some good advise from the beginning and along the way, it was all very helpful. Thank you!!

In the end I owed $2769 for 2018, the original problem was from selling off a financial interest and the original cost basis was never recored when a investment institution change occurred. I had also decided I’d have my 2019 return checked as I was certain an error was made here as well. I was correct and ended up owing $6603. Needless to say this also effected my CA returns for these years as well. In all I payed $14,562 and can now say the matter is 100% settled. Again I thank everyone who responded for their time and help and hope this thread proves useful to someone in the future.

 

[Taxing Matters]

Thanks for coming back and giving us the update on the outcome. That doesn't happen all that often. It's never fun having to pay tax, but I'm glad to hear that you now have the matter settled and that you did not need to resort to going to Tax Court.

 

[LdiJ]

Follow up: As mentioned above I had my newly hired CPA go over my 2018 tax returns due to the CP2000 notice I received in early December 2020. I also had him look over 2019 as I felt the same type of error was made here as well. in the end I ended up writing both State and Fed check for both tax years.

I have since filed my 2020 taxes using the same CPA that helped my with my CP2000. I ended up with a refund for both State and Fed and have in fact already received my Federal refund (still waiting on State). Today I received a CP3219A from the IRS for 2018. The amount is the same as the “penalty“ calculation from the CP2000 for 2018. But having filed a 1040X I had shown the tax deficiency was not what they calculated it to be. I figured I couldn’t escape the “penalty“ but I would have guessed the amount of said penalty would have been corrected/adjusted based on the amended 2018 return?

i have not yet been able to speak with my CPA but I have emailed him and am awaiting his response. This evening I also created a login with the IRS to see what clarification I might find. On the homepage it’s shows “account status” and ”total amount owed” as $0.00 (tax years 2017-2018-2019-2020). Needless to say I’m a little confused. As always feedback and comments are wanted and welcome. I also though it important so anyone else that comes across this thread gets as much information as possible.

When did you send in the amended return? I am assuming it has already processed since you are seeing a zero balance for 2018 and 2019, but the IRS is very behind in dealing with their mail. If you go to irs.gov and type in "where is my amended return" in the search bar, and then follow the prompts when you get to that page, you can see when they recieved and processed your amended return for 2018. If it shows fully processed but only very recently, then the CP-3219A probably was initiated before your amended return was fully processed.