I received a CP503 in February 2024. I found out it was the follow-up to a CP2000 which was sent to an old residence that I hadn’t been aware of. They claimed I owed $23,000 from unreported income that originated from the sale of securities. I found out it was related to some RSUs that were sold as a part of my yearly compensation.
However, I paid all my taxes on it at the time of sale and had the documentation. I was also able to get my cost basis documents to show there was no significant capital gains at the time of sale either. I accidentally failed to report the cost basis in my return that year though which is what caused this issue. I called the IRS and they recommended I send them a letter disputing the claimed amount with evidence.
I sent in my dispute letter back in March 2024, but also ended up paying the $23K to avoid any issues with the IRS while the dispute was processed. Since then, I’ve received 4-5 letters over the past 7-months where they keep notifying me that the dispute was transferred to another team or that they need another 60-90 days before they can respond. I feel like I’m getting the runaround.
In the meantime, I’m still out the $23,000 and it feels like it’s gone nowhere, with no resolution or timeline on when I’ll get that $23,000 back. Any advice where to go from here to expedite the process?
Flynt said:
You should not have sent the money in.
I originally didn’t, but it kept accruing interest and one of their follow-up notices that stated they received my dispute and need more time also said I should still pay the amount as soon as possible while it was being processed.
@Paris
Just in case you ever run into this in the future, when they adjust the tax due they also adjust any related interest. It’s not like they would have agreed with you that actually $0 was due, but still expected years of interest.
@Adrian
Good to know and good point. They had mentioned legal action and liens in some of their letters for failure to pay and when I called, so I figured I should pay for now to avoid any misunderstandings while they processed. Naively assumed it would only take 3-5 months to resolve, that’s on me.
I’m not a CPA but it sounds like you made an error on your tax return that needs to be corrected. Was the net value of the RSU sale reported on your tax return? Was any tax withholding included in your return? If not, you had unreported income, and possibly unreported tax withholdings. You need to redo your tax return with those 2 missing pieces and determine the unpaid tax, if any. You can’t just make this go away with a letter.
@Marin
It was a mistake on my end, I accidentally didn’t report cost basis during my return. I sent in all the documentation showing the paid taxes in my dispute letter like an agent advised I do during a phone call. But looks like IRS is backed up from what I can gather from other comments.
So, if I understand correctly, you didn’t actually amend the return but just sent the requested documents and response letter, right? If they’re still sending notifications, that’s normal, as the IRS is usually slow to process amendments or adjustments like in your case. I agree with another commenter, you probably shouldn’t have paid since the balance due resulted from not originally reporting the cost basis.
The IRS site states it generally takes up to 16 weeks to process an amended return (assuming adjustments take about the same time), but in reality, it can take twice that (I’ve seen cases where it took over a year). There’s not much you can do to speed up the process, though calling the IRS regularly might help. Still, it’s doubtful they’ll send you the $23k before finalizing the adjustments.
Are you doing your tax returns yourself? Please get professional assistance if you don’t have it already.
In many situations gains from RSUs are reported twice, once on Form W2 as wages and again as capital gains on Form 1099-B. It’s very common for a taxpayer to report the W2 income and fail to report the 1099B income. Then the IRS assumes there is zero cost/basis and bill you for tax on the entire proceeds. If computations are done correctly the 1099B transaction should end up in a loss in the amount of the broker’s fees, but you need to know how to compute basis.
I don’t know what kind of letter you sent and to where. Again, if you haven’t sought advice from a tax pro, now is a good point.
@Darby
Thank you. Definitely planning on working with tax professionals. I did them myself at the time through a self-service provider, but didn’t realize I was making mistakes. That’s on me. I was still only 2-years into my career and assumed I was doing them correctly but was clearly wrong.