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Author: TheTortoise One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121316  
Subject: My first ever "Notice" Date: 7/4/2012 3:40 PM
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I’ve received IRS Notice CP2000 for the year 2010, proposing that I owe an additional $2185.

Since the discrepancy pertains to the sale of a PTP partnership, which involves a K-1 ... and these things are the dickens to understand (which is why I sold it) ... I am graciously open to taking responsibility for any errors I’ve made. At the time I filed, I was confident of my reporting ... but looking at it now I’m dazed and confused.

I bought CODI in 2007 for $4993 and sold it in 2010 for $5522 -- and have both trade confirmations.

Using an online 2010 tax program (which I no longer have access to), I reported the sale of CODI on Form 4797 (Sales of Business Property), Line 2. The net gain from Line 7 was carried over to Schedule D, Line 11 -- as directed -- and taxes were duly paid on it.

But here’s where my memory gets hazy. On form 4797, I correctly reported $5522 as the sale price, (and this is what the broker reported to the IRS). But for the cost basis, I reported $4776 ... which I apparently took from the 2010 K-1, Part II, Section L (Partner’s Capital Account Analysis), on the “Withdrawals and distributions” line -- and I have no idea why I did this -- unless it’s that the “Tax Basis” box is checked.

Over the years, I dutifully reported interest and dividends on Schedule B ... and since I don’t itemize, I didn’t take any deductions. I don’t know whether any of this leads to an adjusted cost basis.

QUESTION 1 - Is this $4776 my adjusted cost basis ... or should I have reported the $4993 which I actually paid as my cost basis?
_________________________

However, none of the above is what’s bothering the IRS. Their notice to me states that the sale of CODI for $5522, which was reported to them by my broker, was NOT included on my return -- and they recomputed my taxes using a zero cost basis. They apparently missed the Form 4797, and the carryover gain to Schedule D, Line 11. (I had not listed CODI on the Schedule D long-term cap gains list ... because it seemed that would cause it to be taxed twice.)

Their zero basis treatment of CODI also resulted in more of my Social Security benefit being taxable -- which ran up quite a tab of underpayments.

QUESTION 2 - Do I owe the IRS more, less, or exactly what I paid -- and do you have any advice for handling this?


Thanks a million ...
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