a 1099-S was likely issued and you failed to report the sale and exclusion on your tax return - Form 8949/ Schedule D. . if you had you would have not gotten the first notice nor a CP2000 letter which is likely in error because the IRS is so far behind in processing letters (your initial response) and tax forms mailed in. you probably didn't use a tracking service so you would know for certain that the IRS received your response to the first notice. Using a tracking service for any response to an IRS notice is advisable for this reason. the point is thousands of taxpayers sell their principal residence every year and use do-it-yourself software without the need or cost of a professional. Savings - what a pro would charge for doing a return (tax attornies are expensive) and in your case the $7,200(?) the tax attorney is charging to respond to the CP2000
Turbotax should have asked you about the home sale and you either ignored it or answered incorrectly.
if you hadn't engaged an attorney I would have suggested using either:
The Audit Defense service is provided by TaxResources, Inc., also called TaxAudit.com, in partnership with TurboTax. If you paid for Audit Defense and you received an IRS notice, call TaxResources, Inc. at 877-829-9695, or report your IRS notice on their website at http://intuit.taxaudit.com/.
or send in the following letter with the CP2000 a 1040X, Form 8949 reporting the home sale and exclusion and the related Schedule D
<Date>
<Address of the IRS service center from
which you received the notice>
<Your Name>
<Address>
Phone: XXX-XXX-XXXX
Tax Period: XXXX
Taxpayer ID: XXX-XX-XXXX
Tax Form: 1040
Re: Response to CP2000 Notice Dated Month, XX, Year
To Whom It May Concern,
I received your notice dated Month, XX, Year, a copy of which is enclosed as well as completed forms you asked me to provide and return to you by Month, XX, Year.
After carefully reviewing your notice, I have checked page X of the notice indicating that I do not agree with the changes the Internal Revenue Service (IRS) is proposing.
The notice indicates that I underreported $XX,XXX of income reported to you via Form 1099-S issued by (insert company name).
The amount reported on Form 1099-S merely shows gross sales price. It does not include my cost basis for the home sold in question. See enclosed Form 8949 for my cost basis and applicable home sale exclusion.
As you can see, the actual amount of taxable profit on the sale is $0.00 as per Form 8949.
Therefore, I respectfully disagree with the proposed amount and request you to adjust my tax account accordingly.
Please do not hesitate to contact me at either the address or phone number included above.
_______________________
<Taxpayer Name>
Enclosures:
CP2000 Notice dated <Date>
Response Form (***make sure to check the right box***)
IRS Form 1040X
IRS Form 8949
IRS Schedule D
