For Tax Professionals only...?

Yes, the CP2000s are more difficult this year. I swear I've seen a few where the AUR department posted the adjustment and never generated the CP2000, let alone mailed it out. (As opposed to one person in AUR saying it would be a no-change and another person assessing the tax anyway.)

Historically, I noticed that the CP2000 was absolutely horrible if AMT was involved. The CP2000 version would ignore qualified dividends as being qualified.

At least with your being a professional, your clients with HSAs have presumably reported them correctly. The CP2000 is flagging missing 8889 forms as both non-qualified distributions (taxable, plus 20% penalty) and excess contributions (taxable plus 6% excise tax).

The programs are also not picking up amended 1098-Ts. As in the first one doesn't say the student was greater than half time and the amended one does. Ergo, the education credit is being disallowed for students who legitimately claimed it.

I wouldn't go so far as to say "they are hiring idiots"--but I think the complexity of the tax code and congress's penchant to socialize the tax system creates too much work and too many changes. While I want the IRS to have a robust testbed that can test every variation of taxpayer before making the computer code go live, I think the tax code has reached the point of no return.

Just look at the anti-fraud code in January. They put in 100s of rules to catch bad returns--returns that just looked wrong--and 80% of the returns were getting kicked out, so they went back to the less stringent filters.

Most frustrating--to me at least:

Taxpayers who filed extensions, got them and *also* got a denial letter. The account transcript had the proof that it was granted.

People who filed in February with a check payment scheduled for 4/15 who got bills in February when some baldue returns were processed early.

People who efiled 4/15 and paid 4/15 who got bills with FTP and interest because the IRS computer sent bills out immediately, even though it's common knowledge that paper checks take a week to post. By the time they got the bill, the account showed $0, but someone had to call to find that out. (or wait a few weeks to find out the CP501 was NOT being sent).

And the new we-want-a-transcript rules with FAFSA and BANKS. You want tears? Try telling someone that a paper return with a balance due doesn't have a normal processing time. It could be May, it could be June, it could be July....

Over 70% of the CP2000 notices are in error. What has happened is that the IRS has gone overboard in buying computer systems and software; but failed to figure in their budget what would be necessary to hire tech support to fine tune and deglitch these systems. The computer has been hatched and raised on my watch; and after years of buying computers for my tax business and buying tax programs I have found that the single most important thing in your life is tech support; as something always seems to be going wrong somewhere. Anything mankind makes is fallable; never forget this little bit of reality. I know a person who works for the IRS and is counting the days to retirement; we discussed the problem at length; and I was told that due to computer and program problems many IRS employees have simply given up trying and just mark time as they can do nothing to fix it. It is always all about the money.

Not only am I getting incorrect CP2000, but I'm getting flooded with them. I have a lot of high income clients with complicated returns and apparently things don't jibe well with their new system.

Examples:

Interest from a K-1 was on two lines of the Sch B because some was Govt and some wasn't. They missed the 2nd line.

Withholding from K-1 ($8) wasn't picked up by IRS, so they said we overstated w/h by $8 (out of over $1M of withholding! Stop the presses!)

We "missed" $500 in capital gains (we really didn't), but the IRS said we did and instead of changing the capital loss carryover from $105,500 to $105,000, they simply added the $500 to income and recalculated tax liability...ignoring capital losses entirely.

Assumed all gains from a 1099-Q (529 plan) was not used for education (I never liked how we simply ignore the 1099-Q entirely when all proceeds are used for education...I'd like it if we can include it somewhere on that tax return just to acknowledge that we did not miss it, but it was all used for qualifying expenses), and when I wrote to them with evidence that it was, they "adjusted" the tax return by doing absolutely nothing to it and gave us another CP2000 with the exact same presumptions. Did they even read what I wrote?

Assumed the three 1099-Rs that my client received with $0 in box 2 (taxable amount...because their basis exceeded what they withdrew) and with nothing checked in the "Taxable amount not determined box" must have been wrong, so they took what was in box 1 and assumed it was all taxable. Another client (who doesn't have much money) converted all of her T-IRAs to Roth, had a basis exceeding the conversion amount, filed a 8606 religiously each year showing the basis, but was told she had no basis and needed to pay over $3,000 in taxes.

But my favorite: Carry-over charitable contributions from 2007 into 2010 were disallowed because the taxpayer failed to file a 2007 tax return. He did file, got a refund from the IRS, and we even got a transcript from the IRS of his 2007 return. What, did they not even try to find his 2007 return? Did they mistype his SSN and not even check twice to see if it was correct? So they gave him a heart-attack saying he owed $32,000.

Killing me.

Thank you for the above enclosed information about the enclosed matters and mistakes that you have seen that have been made some of the IRS workers computers scanners and the stressed out personnel that they have working a this time of this tax filing season during this 2012 year with the new computer system that they seem to continue to have some problems with from time to time during this filing season.

Just keep up your good work and your clients should be happy and pleased with the results that you have been able to come up with to help them out with the problems that were caused by these mistakes that were made by the IRS at that time in their lives.

Hope that you find the above enclosed information useful. 08/01/2012

I haven't seen enough CP 2000s recently to comment on CP 2000s in general. However, I have seen several CP 2000s in the last year in which, in addition to some minor underreporting issue, the taxpayer's first time homebuyer's credit (FTHBC) was disallowed. All it took to get a correction in each case was a written request for a human to explain how the FTHBC is even a CP 2000 issue. I can only wonder how many unrepresented taxpayers had their FTHBC disallowed due a computer glitch.

actually, I have had VERY FEW CP2000's on my clients so I am not aware of the gross errors you are referring to

and speaking of inept employees, many years ago my client's daughter applied at IRS in Fresno and she barely typed 20 words a minute, which at that time was apparently part of the requirement of the job

she got it, but she did move up and continued working for IRS, plus each husband she has married was also in IRS, not bad for a barely passing typist

The tax examiners who handle these things are not paid for thinking. If you have W-2s you are on solid ground. Ideally you can get pay statements as backup. Go to appeals if you have to and raise possibility that the employer under-reported withholding on their employment tax returns.