From $32,000 Balance Due to $22,000 Refund

Last August I was assigned a new CP2000, which is one of the more common IRS notices our members receive.  The notice showed the member owing $31,838, including penalties and interest.  The issues were security sales and additional withholding.  In looking over the return, I was able to see that the items in question on the notice had not been reported on the originally filed return and that I would need additional information from the member. 

The member had reported a large security sale without any cost basis, an error many self-preparers make when reporting the sale of stock.  Most security transactions have some amount of cost basis associated with them, so I made a note to ask him about it. In discussing the transactions with the member, I was able to confirm that they were all related to employee stocks that he had sold.  I reviewed with him the additional documents that would be needed to make sure the correct cost basis was being put against the proceed of the sales.  

The process of getting the correct documents to support the cost basis is not always the easiest thing to do, since a fair number of taxpayers do not know for sure what type of employee stock they have received.  This member had received both Restricted Stock Units (RSU) and stock from an Employee Stock Purchase Plan (ESPP).  The member had reported the ESPP stocks that were sold on the originally filed return but had missed reporting the cost basis for the transactions on the return. The member sent in the RSU documents right away, but it took a while for him to supply the supporting information for the ESPP since he had to have his wife contact her employer for the additional info.   

Once I received the documents, I was able to match up the transactions and calculate the cost basis. As I reviewed the documents the member had provided, I discovered that that his spouse had also sold ESPPs that had not been reported on the originally filed tax return. I informed our member that I would include the new information with the response to the IRS but warned that they may need to file an amended return to account for the difference in cost basis. 

A few weeks after submitting response to the IRS, I followed up with the examiner, who told me the members would be getting a new notice sent out to them with a “no change,” meaning there was no longer a balance due.  I requested that we go over the numbers that were listed on the Schedule D and Form 8949 for each of the transactions.  When the examiner agreed that the transactions had the same cost basis I had calculated, I explained that with the new cost basis there would be a reduction to the taxable income and a refund due rather than the “no change” she had mentioned.  While we were on the phone, the examiner made the corrections to the return and told me the member would be receiving a new CP2000 notice to review.

When the new notice finally arrived, it indicated that the member would receiving a refund of $22,329.  The amount of the refund lined up with what I was expecting with the adjustments made to the original filed security transaction as well. Needless to say, our members were thrilled with the result.