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Ask HN: How to deal with IRS CP2000 letter for $xx,xxx tax due?
IRS is telling me they want tens of thousands of dollars in tax for 2015.
Up to 2015, I operated a credit card merchant account (First Data) where I would process event ticket sales on behalf of clients, and ACH transfer them their funds. Of the money processed, perhaps 3% is income. I no longer do this model (for many reasons) and use Stripe instead.
Naturally, First data sent me a 1099 saying I made a bunch of money. IRS knows that. I don't report 1099's on my returns directly, because I have an accounting system that includes all of that income.
So clearly, I can explain to a layman why this money is not income, but what is the proper way to respond to this letter and prove it, hopefully avoiding an audit?
Thanks.
- staticautomatic 9y agoYou might be able to get away with handling this on your own, but you should really have an experienced accountant deal with the IRS on your behalf.
- segmondy 9y agoCP2000 doesn't mean all of that is income, part of that money is expense, so FD will tell IRS say you made $50,000. Then you need to say 97% $48500 is expense and pay tax on $1500. Have your records ready if you get audited. You can't avoid getting audited. Best assume you will get audited and be ready.
- jblake 9y agoThe way I set this up in my accounting system was to pile all first data deposits into an asset clearing account, create a bill to pay the client, and then record a payment from that clearing account. Since the IRS only sees income & expenses, I can understand the trigger for the CP2000. I didn't see a logical way to report this activity on my return. I guess I need to write a short letter explaining it, saying I don't do it anymore, and include highlighted bank statements of the money coming in, and the money going back out. Unfortunately I don't have tax numbers for the clients.