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RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Is a CP2501 form for underreported income

Resolved Question:

I received IRS form CP2501 last month. I filed my response and have now received a letter stating that the IRS will contact me w/I 45 days to let me know what action they will be taking. How much should I prepare to spend in additional tax and should I contact a tax attorney to address this matter? I originally sent all my stuff to file an amended return and my tax guy lost it and never filed the appropriate documents. Any idea where I can turn or advice I can use? I just don't understand why they won't just send me a bill?

Submitted: 10 years ago.
Category: Tax
Expert:  RD replied 10 years ago.

Can you provide some details on the matter that was involved in CP 2501, and your reply?

Customer: replied 10 years ago.

It was an issue with a family trust income that I had received in 04. I originally filed with the knowledge that it was tax free, and then a month later in March was told I had to file an amended return that would include special form numbers to acknowledge the income. I sent the originals to my father's tax guy in California who had originally set up my late mother's trust and waited to hear what I owed and what his services would cost me. A week before the 4-15 deadline I contacted him and he told me he lost all my original paperwork, and said I should just file this on my own. I didn't know what to do since all the paperwork was lost with his office three states away. He passed away four months later and in Oct of 05 his secretary said she found my tax stuff. I asked her to mail it back to me and surprisingly it never got here.
Since I have never filed anything more than the generic 1040 I had no idea what to file or where to turn. As a result the income was never reported and I am now facing this cp2501 to address with an additional 45 day wait that is making me crazy. I have no idea how to address this audit and wish for any assistance you can provide.

Expert:  RD replied 10 years ago.

From your details it seems like a case of underreported income. What the IRS will do is assess tax on the unreported income, charge additional tax and also levy penalty and interest. Once you get that notice from the IRS, I would suggest you to make the payment as soon as possible and also to discuss with the IRS and try to get the penalty waived by explaining the entire situation.

They may not waive the penalty on the ground that you should have tried to get the income details from the trust or from the IRS when you found that the papers were lost but it is definitely worth a try.

Customer: replied 10 years ago.

What do you mean by "levy penalty and interest"?
I understand the interest portion but what is meant by "levy penalty"?

Expert:  RD replied 10 years ago.

There is a penalty for not paying the taxes that you owed and also penalty for underpayment of the estimated taxes. This may apply in your case since some of your income was not reported and hence tax on that part of income was not paid.

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