Click here to listen to other IRS Back Tax Help episodes.<\/a><\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah usually we complain and we complain, complain and moan and groan…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0It’s really good.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Today was not too bad I agree.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0What’s going on today Pat that the traffic was so light any idea?<\/p>\nPAT GEORGE: <\/strong>\u00a0Ah no it’s just we are lucky today.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Maybe people weren’t texting, they were paying attention while they are driving that’s good.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah cause people we’re not getting into accidents is what usually happens out there.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Or they drive like idiots and we’ve been in no traffic mood, we are really glad that you are not doing that today. \u00a0So thank you but you are listening to the IRS Solution Attorney show and we got a great outline planned for you guys today and unless you’ve heard of an IRS CP2000 you probably have no idea what it is so Darrin is going to explain.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah so the title of the show is What is an IRS letter CP2000 and what do I do when I get one? \u00a0So an IRS letter CP2000 is a notice from the IRS that alerts the\u00a0tax payer\u00a0that their tax, that their filed return has inconsistency from the information returns filed with the IRS. \u00a0Now that sounds really lawyerly so here’s the bottom, bottom\u00a0line…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Very lawyerly yes break\u00a0down.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Here’s the bottom, bottom line, the IRS is sending you a letter that says hey we are going to do what’s called a correspondence audit, we are going to do an audit by the mail, through the mail because you forgot to put some income on your tax return.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0So it’s almost like a light audit because they got a 1099 or something?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah\u00a0it’s definitely a light audit from the standpoint of it’s all done by mail so it’s not one of these love letters that says, hey, congratulations you’re under audit and bring all of your stuff down to the\u00a0auditor\u2019s\u00a0office on such date and reserve 4 hours. \u00a0Now that is not what this is about, what this is about is like hey you forgot to put some income that we know about on your tax\u00a0return…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0We are going to see if we can find it kind of\u00a0thing.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0And what we’ve done is very helpfully decided to,\u00a0asses\u00a0tax and recalculate everything and if you\u00a0agree, sign here and if you disagree here’s what you\u00a0do.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0So is there an amount on that letter like this is how we reassessed it, this is what we think you owe if you\u00a0agree,\u00a0sign it and send a check?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Absolutely there’s an amount and usually…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0And you can do that and that’s the end of it?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well,\u00a0theoretically and we will get into that in some detail…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Ok.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0But yeah there’s an amount on there and the amount can be low, you know it could be a few hundred bucks or it could be\u00a0eye-popping, I’ve seen both, I’ve seen…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0What’s\u00a0eye-popping\u00a0on one of those?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Umm well to me, if it were\u00a0me,\u00a0if it was my money anything\u00a0eye-popping\u00a0is over 10 grand. Now in my world as an attorney that handles and helps people with tax\u00a0problems\u00a0I would say\u00a0eye-popping\u00a0is like a hundred grand?<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Ridiculous tax problems.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah that’s like hundred grand?<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0So let me ask you a real estate question. So with one of these notices the IRS CP2000 let’s say someone did a short sale or a foreclosure or whatever and then they got\u00a0the 1099\u00a0for the difference that the bank resold the house for, would they send you a notice for something like that? Let’s say you didn’t file\u00a0the 1099\u00a0because they are taxing you as income because it was\u00a0their\u00a0loss, have you seen that?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah we actually need to do a whole show on IRS you know cancellation of debt issues but yeah absolutely if that 1099’s C for that cancellation of debt was not included on the tax return well yeah for sure you are going to get a CP2000 and they are going to very helpfully recalculate the\u00a0the tax\u00a0for you and the penalties and interest and what not.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0So let’s say it’s a $100,000 difference just\u00a0raw,\u00a0even numbers, roughly what might that look like?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well you are going to have\u00a0depending\u00a0on the tax bracket you are probably going to owe $25-30,000 in tax plus, plus, plus. \u00a0Interestingly enough the penalty is not going to just be\u00a0late\u00a0payment. You are going to have an accuracy penalty because…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0What?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0By definition you were\u00a0inaccurate.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Inaccuracy penalty?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Inaccuracy penalty is 25% of the tax. So accuracy penalties like they\u00a0hurt.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Well $100,000 is 25 grand plus whatever your tax is right?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well no it’s 25% of the tax not 25% of the income.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0But it’s still 25% of that amount?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Absolutely so it can be a really big deal. We’re seeing a lot of CP2000 and you always see them sort of around this time of year because people filed\u00a0their\u00a0tax returns early because you know they were expecting refunds and what not and then it takes 6 or 8 months for the IRS to kind of like match up the return to the information returns. I think that this process is largely automated, you know the payor of the money, so the payor of\u00a0the\u00a01099\u00a0for example,\u00a0is going to send in those 1099’s, I think 1099’s are due at the end of February and so then they computer eventually matches all of the information returns all of the W-2’s, 1099’s and 1098’s matches those in an automated fashion to\u00a0the 1040\u00a0that was filed by the\u00a0tax payer. If there’s a\u00a0discrepancy for example\u00a0a 1099\u00a0doesn’t end up on a tax return, then you are going to get a CP2000 guaranteed.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0So in that scenario that we used like let\u2019s say it’s $100,000, it’s a mortgage tax or you know where they sold the house and that’s the loss they took. In that particular instance let’s say if, cause you now people move obviously afterward in that scenario and the banks going to send it to whatever the property address was. Would they still hold that against the taxpayer or do you have loopholes around that?\u00a0Right\u00a0cause that’s a good question, don’t you think?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Because they are saying oh you didn’t file this or what did you just call it a minute ago what kind of penalty?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Accuracy penalty.<\/p>\nKATRINA MADEWELL: <\/strong>Accuracy penalty. \u00a0But the homeowner,\u00a0let\u2019s\u00a0say they just didn’t know or they didn’t mean to be inaccurate but they never got it, never got\u00a0the 1099?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well that’s going to be perhaps an argument against you know having the accuracy penalty filed against them and I can see that scenario exactly what you are saying you have the 1099C for cancellation of debt and they send it to the home that was actually short sold you know…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Right.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Sometimes it’s years…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Oh yeah.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Sometimes that 1099 gets issued years after…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Can they do\u00a0that,\u00a0though?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0I guess if that’s the year that they took the loss because they sat on the property and they finally foreclosed on it right?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0As a practical matter that is what they do but there’s remember\u00a0there’s\u00a03 exceptions to the cancellation of debt incomes sort of situation so let’s recap what we are talking about here. When a\u00a0taxpayer\u00a0has debt that’s cancelled by the IRS, Congress has decided that it’s the same as if you have gotten the money and then the debt was forgiven so, it doesn’t make a lot of sense to me let’s say you owe, your $100,000 in your case so the way that the tax code looks at it is that if it’s a hundred grand then, if it’s a hundred grand…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0You can’t (inaudible) but I will just, ok it sounds like Darrin’s distracted because he is so I will just tell you, you might have heard this before we have this little monitor literally sitting next to Darrin and Pat loves to, he does it to me all the time when I’m in the studio on Friday’s to but he loves to flash these funny images just to see if he can mess us up so we are both sitting here trying not to crack up laughing and Darrin, anyway…<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well here’s the actual deal I’m not even looking at the monitor, I’m not looking at Pat I’m actually looking at Katrina and Katrina’s so distracted laughing at the pictures of farmers in overalls because that’s poking fun at me that I can’t, I can’t concentrate because she is asking me these questions about those complex stuff and laughing at the same time.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0I’m sorry ok.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0So let’s go back…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Let’s recap please\u00a0yes.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0So let’s go back to the cancellation of debt you have a homeowner that owes 100 grand on the property and it short sold and\u00a0so, therefore\u00a0they didn’t have to pay that hundred grand.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Forestalled or Foreclosed or whatever happened.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Foreclosed or whatever.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Yeah.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0So then the, it, because that hundred grand was forgiven then they are supposed to pay tax on that $100,000 because the theory is if they had gotten the hundred thousand dollars and then they\u00a0would have\u00a0been able to pay that debt off and you know and so on.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0But they lost money in the sale so now they want to tax.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah really kind of a\u00a0stupid.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Well it’s kind of like the bank is writing it off right as a lost so\u00a0now…<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah. \u00a0I hate the law I think it’s stupid, it’s just a money grab but that’s just my opinion honestly. \u00a0So,\u00a0there’s\u00a03 exceptions to that situation ok so there’s, if it’s right now this is the law right now and it’s been extended year by year for a while now but if it was acquisition, if it was due to acquisition debt for a primary residence then it’s not, it’s not taxable, you have to fill out a form called 982 and then you can deal with it but that’s a great example in this situation so\u00a0let\u2019s\u00a0say there’s a 1099C that was issued, taxpayer didn’t know about it so it’s not on their 1040 and you know what do you do? \u00a0Because let’s say it was acquisition debt for the primary residence, well what you do is you fill out that form 982 and you do an amended return and you, that’s your response to the CP2000 letter if that makes sense.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0And your 982 is for insolvency right?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Well\u00a0it’s also for the primary acquisition debt so the second exception would be insolvency. Insolvency is exactly what? \u00a0Well, insolvency means that you have more debt than you have assets.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Which is usually the case for a\u00a0foreseller\u00a0foreclosure.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Typically when somebody is losing their primary residence is not because they have the money it’s because they don’t have the money so it’s only, the debt is only, only nontaxable to the extent they are insolvent. \u00a0So let me give you, hypothetical\u00a0there. If\u00a0they are insolvent by $70,000 and they owed a hundred thousand dollars or they had a hundred thousand dollars cancelled then they still have to pay tax on that last $30,000 also not fair but that’s what the law is. \u00a0The third exception is if the debt itself was discharged in a title 11 case,\u00a0fancy\u00a0way of saying bankruptcy, if the debt itself was discharged in a bankruptcy then there is no cancellation of debt penalty.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Of course, right, because they can’t collect on bankruptcy stuff.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Otherwise every person who ever went through a bankruptcy would get a 1099C at the end, owe a bunch of tax money and it would do away with the whole purpose of filing\u00a0bankruptcy…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Kind of defeat the whole purpose yeah, bankruptcy exactly. \u00a0So our topic for today’s show is the IRS letter CP2000 and what to do if you actually get one. \u00a0So I asked Darrin a question that kind of took us off topic real estate as always, but we are going to answer those questions for real when we come back and if you received an IRS notice CP2000 and you want to call in and chat about it and ask Darrin a question you can do so at 888-404-1010. Again we are live today in the studio 888-404-1010 and we will answer your IRS CP2000 questions we will be back in a minute.<\/p>\n(commercial break)<\/p>\n
KATRINA MADEWELL: <\/strong>\u00a0I forget what this is to? \u00a0What did this, what was this\u00a0music,\u00a0Pat? \u00a0Where did it come from?<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Ok there we go.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0I don’t think you are quite old enough.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0I’ve heard it before but I didn’t know what it was.<\/p>\nPAT GEORGE: <\/strong>\u00a0Oh, to be this\u00a0young.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0I didn’t recognize it; how old do you think I am?<\/p>\nPAT GEORGE: <\/strong>\u00a047.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0What you are crazy.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0I’m going with 28.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Whatever you are both liars\u00a0that’s\u00a0good that’s fine.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0One was at least a nice liar.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Yes.<\/p>\nPAT GEORGE: <\/strong>\u00a0Is this your wife? Is she Ava\u00a0Gabor?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0My wife is absolutely gorgeous but she is not afraid to get dirty.<\/p>\nPAT GEORGE: <\/strong>\u00a0Ok, that’s good.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Yes I could see that about Heather.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0But Ava Gabor was definitely you know absolutely gorgeous but definitely afraid of getting dirty.<\/p>\nPAT GEORGE: <\/strong>\u00a0You know it’s just such a contrast of\u00a0you. You\u00a0know you come in so educated about the IRS and all of the rules and you are always dressed so nice, and you own a farm.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0I know. With quail.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Alright, so today’s farm story if anybody is following the saga, so I just bought a small farm out in Pasco county and we’re living on an and it’s my first sort of foray into farming and my wife grew up on a farm in Colorado and she knows lots of things and she is really awesome. \u00a0So I decided to get some quail to raise for fun over the last weekend and I got, you know I had a quail coop and the whole nine yards and I spent a lot of time securing this thing and you know building a new stand for it and stuff.<\/p>\nPAT GEORGE: <\/strong>\u00a0Would it have been tax deductible?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0No, well maybe theoretically on a schedule F I think that’s a little bit…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0What does it, what does a quail look like, they have a long black tail? \u00a0I’ve never seen a quail?<\/p>\nPAT GEORGE: <\/strong>\u00a0It’s very small they look like a gray sparrow but kind of\u00a0fat.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah they are like 8 inches tall they walk around on 2 legs like a\u00a0chicken.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Ok.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0You know they are not real\u00a0big.<\/p>\nPAT GEORGE: <\/strong>\u00a0People like to shoot those and eat them but you get a tiny piece of meat for a lot of bones. \u00a0They are very bony.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah. \u00a0But they lay eggs, the eggs are really small, and the eggs are like you know…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0But do you eat the quail eggs?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah,\u00a0you can they are just like a chicken egg but the ratio is 5 to 1 so they are pretty small.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Ok.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0But so a devastatingly sad thing happened yesterday morning, I woke up and I went out to go feed my quail and a racoon had apparently gotten into the cage and massacred almost all of them.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0I’m surprised they got them all at once? \u00a0Usually don’t they take a little longer? \u00a0Might have been a team of racoons.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah\u00a0might have\u00a0been a whole family. \u00a0What do you call a group of racoons, probably a Congress, a\u00a0covey\u00a0I don’t know?<\/p>\nPAT GEORGE: <\/strong>\u00a0You know it’s funny you pulled up what you would call that I was just looking at the word of the day and the word of the day today is Bevy.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Oh\u00a0was it a bevy of racoons?<\/p>\nPAT GEORGE: <\/strong>\u00a0So it’s a bevy of racoons maybe I will find out. \u00a0But what do you think you call a bunch of crows? \u00a0I was shocked by this a bunch of crows.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0I don’t know.<\/p>\nPAT GEORGE: <\/strong>\u00a0A murder.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0What?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Oh,\u00a0ok,\u00a0that’s interesting.<\/p>\nPAT GEORGE: <\/strong>\u00a0And a group of swine because you might raise pigs\u00a0it\u2019s\u00a0a\u00a0sounder.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0A sounder of swine.<\/p>\nPAT GEORGE: <\/strong>\u00a0Yeah.<\/p>\n
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