I have someone that received a CP2000 letter from the IRS for leaving off $40,000 he withdrew from his 401k. It is coded 1 – early withdrawal, no exception. I am getting information from him as to why he withdrew it and can hopefully find an exception to the 10% penalty for early withdrawal. Right now tax due is under $13k. Putting that aside, my questions are:
1. Please verify this is correct: Before he can get into an installment agreement, the tax from this has to be accessed, which means either time runs on the CP2000 or he accepts it. About how long does it take for the tax to be assessed after this?
2. CSED isn’t an issue. I thought I read somewhere the IA term could be 84 months, but now all I am finding is 72 months. What is the length of the IA? Does it make a difference if it is directly withdrawn or he makes the payment direct each month online?
3. The accuracy related penalty from this is $2,046 – I know can’t request first time abatement, is it possible to get abated for reasonable cause?
1. Correct – the tax liability has to e assessed first
2. once the bill comes call ACS and arrange a streamlined agreement over the CSED (new procedure is $250,000 or less over the CSED through ACS)
3. Correct, only reasonable cause is available