Underreported Income-the CP2000 Notice–1099-B
If you received a notice from the IRS and it was labeled a CP2000, it means your tax return was missing income that was reported to the IRS. In this blog and other blogs this week, I will address the different forms that the IRS may have indicated you left off your return. The CP2000 shows you what forms were left off your tax return and what you need to do to correct it. It also tells you how long you have to respond. If you miss this deadline, they will assess the tax and it will be a long involved process to prove you do not owe that tax.
Your best course of action is to follow the directions on the form or consult an Enrolled Agent to help you understand your options. If you chose to respond yourself and the form that you did not report is a 1099-B you will need to provide the IRS with the following:
- The date you purchased the stock(this determines whether you gain or loss is long-term or short-term) long term gains have a lower tax rate than short-term gains. Stocks held over a year qualify for the long term gain rate.
- Your stock basis–this is what you paid for the stock plus the commission you paid to purchase and sell the stock–in other words, what it actually cost you .
The difference in your cost basis and what you sold the stock for is your capital gain or loss. This should be reported on a Schedule D on your tax return. Do not file and amended return to correct this error unless specifically instructed to by the IRS. Usually, you can just provide them with the additional information.
You may however, be charged a penalty for the error on your return. You will be charged penalties and interest as well, if you owe additional tax. You can visit the IRS website for more information.