Forgot to include 1099-B from 2018 - received CP2000

[yoturyo]

I forgot to include a Vanguard 1099-B for my 2018 taxes for a total gain of $780 on $35K sold. The IRS sent me a CP2000 notice which assumes a 0 cost basis and so they propose I owe $7K tax + $1.5K substantial tax understatement penalty and $700 in interest for a total of ~$9000.

I plan on replying back that I do not agree and including the 1099-B showing the $780 gain (~$34.2 cost basis) as well as a list of dividend received transactions older than a year since there is no "date acquired" for two of the transactions due to reinvested dividends I think.

They note in the letter that I do not need to send a 1040X and they will make any applicable corrections. Should I just wait for the correction to be made since the 1099-B clearly shows I only owe taxes on the $780 gain? That should eliminate the "substantial tax understatement penalty" and lower the tax and interest due as well.

[rjs]

What you are planning to do sounds like the right approach. Send your reply by a service that provides tracking and delivery confirmation, such as certified mail with a return receipt. Send a copy of the 1099-B, not the original. Keep a copy of everything that you send.

The IRS is extremely backlogged now. You should expect it to take a very long time for your reply to be processed.

[Mike9241 · Accepted solution]

since sometimes an IRS agent doesn't have a clue as to what they are looking at enclose a letter of explanation in addition to the forms.  I also recommend that you included a manual form 8949 and Schedule D (corrected from what was filed originally) 

[yoturyo]

Should I leave out the list of reinvested dividends?

[rjs]

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@yoturyo wrote:

Should I leave out the list of reinvested dividends?

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Yes, leave it out. The reinvested dividends are not part of the 1099-B, and have nothing to do with the sales. It would just confuse the issue. The reinvested dividends are not the reason that the date acquired is missing. You can always use "various" for the date acquired.

The dividends that you received would have been reported on a Form 1099-DIV, or in the 1099-DIV section of a consolidated statement. You should have reported them as dividend income on your tax return. You probably did report the dividends, otherwise the IRS would be billing you for additional tax on the dividends as well.

[yoturyo]

I ended up submitting a revised form 8949, Schedule D and the 1099-B, as well as the list of reinvested dividends. That's at the very end of the packet I sent so I hope it doesn't matter much. Thanks for your input.