I had a gentlemen come to me recently with a letter called a CP2000. These letters indicate a taxpayer owes a tax because of a difference in the calculation on the return versus what the IRS has on record for the tax year. Most of the time the additional tax is in direct relation to cancellation of debt, a 1099 that was never received, interest paid by a bank, early withdrawal tax and penalty on a retirement distribution not originally included on the return but reported to the IRS. I think you get my point.
We read through the letter, compared it to his tax return and the increase in tax was correct. He was going to owe an additional $10,000 for the tax year. A year in which he owed nothing. The additional penalty was $2,000. I asked the gentlemen if he owed taxes previously, he indicated he has never owed in his life.
I gave him instructions to pay the tax in full, which he could do, so he cut a check for $10,000 (rounded up for simplicity) and we sent it in to the IRS prior to the expiration on the letter for assessment of the additional tax (very important to pay by the deadline date on the letter in order to save additional interest accruals). We also asked the IRS to abate the penalty under the first time abatement criteria whereby a taxpayer qualifies if they have never owed previously. After a few follow up phone calls, the IRS agreed to abate the penalty in full and he simply had to pay the remaining interest (we asked for the interest to be abated, doesn't hurt to try, but it was the interest calculated since the original tax return would have been due, along with the original payment date of April 15th, 2009. Interest in relation to the tax cannot be abated).
Our client was very happy with the outcome and it all was resolved in approximately 90 days or so.
So check twice when you receive a CP2000 or additional tax assessment letter, it may be to your benefit to do a little homework!