So you filed your tax returns on your own, or had a “friend” help you. Then you got the IRS letter (sometimes the IRS Notice CP2000) stating you owe a ton of money. What can be done then?
• By contacting a tax attorney or professional tax preparer, the return can be reviewed along with the items of income the IRS says was missing from the return. In many cases, the amount was reported on the return, but just not in the proper place the IRS computer was looking for it. For example, Form 1099-MISC for nonemployee compensation was reported on Form 1040 Line 21 rather than Schedule C. By explaining the problem, in many cases the issue can be resolved.
• A lot of times the taxpayer has a whole lot of stock transactions resulting from security sales through your broker, that you either—
o Failed to report at all or
o Reported but did not state the basis (what you paid for the stock when you bought it).
If you fail to report a stock sale, the IRS gets a record of the sale from your broker and if unable to find it on your return, shows the income received with ZERO cost and a big tax liability. By simply filing the proper cost schedule on a corrected return, in many cases the tax liability can be reduced or eliminated, or in some cases due to losses a REFUND claimed!
By correcting the errors through amended returns (Form 1040X) for up to three back tax years, the amount of tax owed can be significantly reduced.