Underreported Income-the CP2000 Notice–1099-R
My last blog talked about the CP2000 showing a 1099-B on your stock sales. If your CP2000 has in addition or instead of the 1099-B, a 1099-R, you made a withdrawal from a retirement account. As I indicated on the previous blog, the CP2000 form tell you what you need to do to respond to this notice and how much time you have to respond before the IRS assesses the tax.
Your response to the 1099-R withdrawal involves 2 issues:
- The first really does not require additional information from you. You do owe tax on the withdrawal from your IRA or 401K since you did not pay takes on it when you put it in the retirement account.
- The second part depends on your age and several other criteria. If you are under 59 1/2 you normally have to pay a 10% penalty for withdrawal in addition to the tax you have to pay. There are however exceptions such as buying a first home, medical expenses and others. Visit the IRS website or contact an Enrolled Agent to help you determine if your situation requires payment of the 10% penalty.
As with the 1099-B, you will be charged a penalty for the error on your return and penalties and interest for the amount of underpaid tax.