I received a CP2000 notice for tax year 2020. It lists all of my RSU sell-to-cover transactions as missing from my tax return. As my RSUs vested, Morgan Stanley sold a portion of the shares to cover taxes and I sold the remaining shares in the same year (but not on the same day). I entered these sell-to-cover transactions when I entered the shares I actually sold. But the sell-to-cover details aren't shown on Form 8949 so I see why the IRS thinks I didn't report them.
What's the best way to respond to the IRS and do I need to file an amended return?
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They should be asking for just the form 8949 and the Sch D ... if so simply provide them with the requested information. A completed amended return would also be allowed in response to the notice.
since you say you reported all you can write a letter trying to explain what you did, but the IRS most likely would like a corrected 8949 - break out the trades. probably some are type A (short-term) or D (long-term) - cost basis reported to IRS and others may be type B (short-term) cost basis not reported to IRS. the STC shares are short-term while other shares you sold might be long-term so putting the STC sales together with other shares sold might result in you having underreported your taxes though your taxable income is correct. long-term shares get a special tax rate short-term do not
this is what the IRS says if you disagree
If you disagree, complete and return the response form. Provide a signed statement explaining why you disagree and supply any documentation to support your statement.
you'll have to see if your taxes change when you separate the STC shares - so a corrected 8949, schedule D and 1040-X may be required.
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