Did you have to file an amended return (1040-X) along with the 8949 forms when responding to the CP2000? I'm confused about whether I need to redo my whole tax return or just submit the missing forms.

You generally don't need to file a 1040-X when responding to a CP2000 notice. The CP2000 is just a proposed adjustment, not a final determination. You only need to submit the missing or corrected forms (in this case Form 8949 and Schedule D) along with your response to the notice. The IRS will recalculate your tax based on the information you provide. If they accept your explanation and documentation, they'll either send you a corrected CP2000 or a "no change" letter. Only if you discover additional issues not related to what the CP2000 mentions would you need to file an amended return separately.

Wait this is really helpful. I got a 1099-K from my exchange, not a 1099-B. Which box would I check then? Does that count as "not reported to the IRS"?

If you received a 1099-K, then your basis wasn't reported to the IRS. A 1099-K only shows the gross proceeds (total amount of sales) but doesn't include your cost basis information. In this case, you would check Box C for short-term transactions or Box F for long-term transactions since basis was not reported to the IRS. And you'll need to be extra careful to document your cost basis for each transaction, as that's what the IRS is likely questioning on your CP2000 notice.

This is super helpful, thanks! Quick question - how much is considered a "larger amount" that might trigger more scrutiny? Are we talking $10k, $50k, $100k+?

There's no fixed threshold, but generally speaking, the Criminal Investigation division typically focuses on cases involving substantially higher amounts - usually $100k+ in unpaid taxes. That said, smaller amounts can still trigger criminal investigation if other aggravating factors are present (like a clear pattern of evasion, hiding assets, or lying to investigators). The IRS has limited resources for criminal prosecution, so they tend to focus on cases that are either very substantial in dollar amount or have clear evidence of fraudulent intent. For most people with moderate tax debts who are making efforts to comply, the focus is on collection rather than prosecution.

Yeah this is true. From what I read, it was like a pattern over multiple tax years with substantial income. I think that's the big difference between that case and just owing money that you're paying through an installment plan.

I tried to create an account on the IRS website but got stuck during the verification process because they needed a credit card number and I only have a debit card. Do you know if there's another way to verify my identity with them?

The IRS verification process can be tricky. They accept some debit cards for verification purposes, but not all. If you have a loan (like auto, mortgage, or student loan), you can sometimes use that for verification instead. If all else fails, you can request your wage transcripts by mail using Form 4506-T, but that takes 5-10 business days to arrive. Another option is to make an appointment at your local IRS office - they can pull up your wage information in person.

This isn't always accurate. I've had jobs where I was an employee but elected to have 0 federal withholding temporarily (needed cash flow at the time), so my deposits looked like contractor payments. But I still got a W2 because I was on payroll and they were withholding SS and Medicare.

Which state are you in? I'm in California and wondering if I need to handle this differently for state taxes.

I'm in Massachusetts, which generally follows federal treatment but has a few differences for reporting. In California, they mostly follow the federal treatment for excess contribution withdrawals, but you should still report the distribution on your CA return. The main thing is to make sure the state knows the nature of the withdrawal (correcting an excess contribution) so it's not mistakenly treated as an early distribution subject to penalties. The tax software should handle this correctly if you input the 1099-R information properly, but it's worth double-checking the state section specifically.

You should definitely get credit for the withholding! Check your 1040 - the withholding from your 1099-R should be included in the total federal income tax withheld on line 25d. Sounds like something else in your return might have been causing you to owe.

Did filing jointly affect how your husband claimed his business expenses at all? That's one thing I'm worried about - if somehow his carpentry deductions would be limited if we file together.

Not at all! He claimed exactly the same business expenses either way. The Schedule C for his business worked exactly the same whether we filed jointly or separately. All his tools, materials, vehicle expenses, studio rent, insurance - everything was deductible exactly the same way. The only difference was that when we filed jointly, all those business deductions helped offset our combined income, plus we qualified for additional credits that saved us thousands. If we had filed separately, I would have gotten some credits for the kids, but not as much as when we combined everything, and we would have lost some credits entirely.

Self-employment tax is calculated the same way regardless of filing status. It's always 15.3% of net business profit (12.4% for Social Security up to the wage limit and 2.9% for Medicare on all profit). Filing jointly doesn't change this amount. What filing jointly DOES help with is the income tax portion, where you get better rates and more credits. So while the SE tax stays the same, your overall tax burden is usually lower when filing jointly because of how everything else is calculated more favorably.

Thanks for explaining that! I guess we were confusing the SE tax with regular income tax. Makes sense that the 15.3% stays the same regardless. Good to know the filing status mainly affects the income tax portion.