In addition to notice CP2000, another type of IRS notice that our clients frequently receive is notice CP3219A- Notice of Deficiency. The notice CP3219A is generally a follow up letter after the IRS sends you a CP2000 but doesn’t hear back. If you don’t respond to the CP2000 in the given timeframe, it is likely that you will receive another notice CP3219-A with greater amount of tax balance due, interest and penalties.
The reason for these notices is simple: After the IRS processes your tax return, they determine that the return submitted doesn’t match the information submitted by the third parties.
For instance, you sold stocks during the year and had a capital gain generated. Your broker issued a form 1099-B to you and submitted a copy of the form to the IRS at the same time. However, you accidentally omitted the 1099 when you filed your tax return and hence didn’t pay tax on the capital gain. In this case, the IRS will send you a notice CP2000 and notify you that there is discrepancy between the IRS records and the tax return filed. The notice requires you to respond within 30 days. If you don’t take any action to respond on time, the IRS will continue sending you a notice CP3219A. The notice will explain your right to file a petition in the tax court if you disagree with the deficiency.
Some common reasons for CP3219As are: missing RSUs, ESPPs, or equity from compensation, missing brokerage statements, missing interest or dividends, 401k or IRA withdrawals, debt forgiveness, gambling income (even if you showed a loss), and many others. Essentially, any type of missing income can trigger this notice.
For example, many clients accidentally skip reporting RSUs because they were already in their W2. Many taxpayers also skip reporting gambling winnings or business income under the perception that their losses exceeded their gains. This is incorrect – the IRS requires that you report the income and then show the loss on your return, as well. If you do not report the income, you will receive a notice.
Steps required to correct:
If you receive this notice, do not attempt to correct this on your own as that normally leads to further issues with the IRS. They will not accept a written explanation in most cases, if you are attempting to remove your balance owed. You must complete the missing forms and formally appeal the tax & penalties.
Do not request to go to tax court – that will increase the complexity of your case substantially. You are best off working through the traditional non-court process that we have developed over the years, which includes amending the return and using whichever abatement applies in your case (reasonable cause, FTA, etc.).
We normally ask for abatement of interest, penalties, and tax depending on the exact situation. This normally requires that we amend your return. Once we amend your return and file the IRS appeal, you will receive a letter roughly 30-60 days later from the IRS acknowledging that they received our message. Another 2-4 months later, you will receive another letter adjusting your balance. Some clients are even due a refund.
None of this is professional advice or is meant to provide professional direction. Please contact us for a custom approach to your exact notice.
Dimov Tax handle the IRS notice on a daily basis and have had expertise built up. We have a streamline process to appeal to the notice. It is not always necessary to file a petition. In some case, you can appeal to the notice without going to the Tax Court. Our success rate for our past clients has been over 95% at the first attempt. If you receive a CP3219A, don’t panic. We are happy to assist you to resolve this issue. If you have any questions, please contact us at firstname.lastname@example.org.