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Income received in 2020 but W2 was filed in 2019 and IRS proposed tax owe with penalty and interest for 2019

Hi, a finance institute issued us a NQDC distribution check in 1999 but we did not receive the check nor the W2. So we were not aware of the the income and did not include it in our tax return of 1999.  In 2020, another check was issued but no W2.  It was missed again when preparing for the tax return of 2020. Now IRS sent a letter asking tax owe for 2019 and penalty plus interest.  Should I file 1040X in this case? If yes, which year should I file? What is the chance that the IRS will waive the penalty and interest? Tried to call IRS [phone number removed] but could not get hold of any agent. Thanks!

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Accepted Solutions
pk
Level 15
Level 15

Income received in 2020 but W2 was filed in 2019 and IRS proposed tax owe with penalty and interest for 2019

@joanne19  thank you for your reply  and clarification of the situation.   Since the entity filed a 1099  , the amount would be constructively received  and therefore taxed for the 2019.  And because the IRS has already  sent you a CP2000 for under reporting the income, it is  best to accept  IRS position, pay the  taxes  & interest and  ask for  a waiver of penalty ( explaining the situation).   You could assert  that these monies  were not available to you till the re-issuance of the  check but  then (a) you would run up against the "constructive receipt" rule  and (b)  that you actually recognized  the amount on your 2020 return.   Else just agree with the IRS  and get this behind you

 

IMHO

 

pk

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3 Replies
pk
Level 15
Level 15

Income received in 2020 but W2 was filed in 2019 and IRS proposed tax owe with penalty and interest for 2019

@joanne19 , since the check was issued in 2019 ( they must have issued informational  return to the IRS -- generally a 1099 ), and IRS was  asked you about it -- suggest you accept IRS notice -- there is a portion  there allowing you to agree  and  pay the amounts due --- also send along a note asking for forgiveness of penalty -- they may waive that.

For 2020, if your return has already been processed, please file an amended return to cover the  income received   for 2020 -- IRS will eventually catch up and will ask for interest and penalty.  Note that once your return has been flagged  for missing income  ( non-compliance ) , you need to make sure that for the next couple of years  you are meticulous  about recognizing all incomes.

Good Luck

Income received in 2020 but W2 was filed in 2019 and IRS proposed tax owe with penalty and interest for 2019

@pk Thanks for your reply. I probably did not make it clear that the check I received in 2020 was an re-issue of the check for 2019. That's why there was no W2 issued in 2020. In this case, should I go by the year of W2 was issued or the income was received to file the amended return?

pk
Level 15
Level 15

Income received in 2020 but W2 was filed in 2019 and IRS proposed tax owe with penalty and interest for 2019

@joanne19  thank you for your reply  and clarification of the situation.   Since the entity filed a 1099  , the amount would be constructively received  and therefore taxed for the 2019.  And because the IRS has already  sent you a CP2000 for under reporting the income, it is  best to accept  IRS position, pay the  taxes  & interest and  ask for  a waiver of penalty ( explaining the situation).   You could assert  that these monies  were not available to you till the re-issuance of the  check but  then (a) you would run up against the "constructive receipt" rule  and (b)  that you actually recognized  the amount on your 2020 return.   Else just agree with the IRS  and get this behind you

 

IMHO

 

pk

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