Got CP2000 notice about stock options - I think IRS might be wrong about my W2 Box 12C Code V?

You're right to question this CP2000 notice. Box 12 Code V on your W-2 does indicate income from the exercise of nonstatutory stock options that has already been included in your Box 1 wages. This means you've already paid income tax on this amount. What's likely happening is that the IRS received a 1099-B from your broker reporting the sale of stocks, but they don't have the proper basis information to know you already paid tax on the acquisition value. When you exercise stock options, you need to report both the W-2 income AND the eventual sale of the shares on your tax return, but the basis should include the amount already taxed as compensation. Your response to the CP2000 should explain that the $49,000 was already included in your W-2 wages (provide a copy of your W-2 showing Box 12 Code V) and that you've already paid income tax on this amount. You'll need to complete Form 8949 to properly report the sale with the correct basis amount.

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Ok I need to apologize for my skepticism about Claimyr. After posting my comment, I decided to try it because I was desperate to resolve my CP2000 notice for stock options before the deadline. To my complete shock, they actually got me connected to an IRS agent in about 25 minutes! The agent I spoke with was incredibly helpful. She confirmed that my W-2 Box 12 Code V amount had already been taxed as ordinary income and shouldn't be taxed again as capital gains. She explained exactly what documentation I needed to submit and even gave me a direct fax number to send my response. I submitted everything last week and just got confirmation that my case was closed with no additional tax due. Saved me over $14,000 in incorrect tax assessments. I've never been so happy to be wrong about something I called a scam!

Just want to share my experience - I got a similar CP2000 for stock options but in my case the IRS was actually correct. My employer screwed up and DIDN'T include the option exercise in Box 1 wages even though they put the amount in Box 12 Code V. So double check that the amount was actually included in your Box 1 wages. In my case it wasn't, which is why I did end up owing additional tax. The form you need is called an 8275 Disclosure Statement if you're going to contest the CP2000. Make sure you also look at your original 1099-B from your broker and check if the basis was reported correctly.

Shouldn't your tax software have handled this correctly when you filed? When I got a similar CP2000, I realized I had checked the wrong box in TurboTax for how my stock options were reported. What software did you use to file?

I dealt with this exact situation two years ago. Send a response to the CP2000 notice with: 1. A copy of your W-2 showing the Code V amount 2. A letter explaining that this amount was already taxed as ordinary income 3. The corrected Form 8949 showing the proper basis adjustment 4. Any brokerage statements showing the exercise and sale If you're worried, call the number on the CP2000 notice and explain the situation. Be prepared to wait, but once you get someone on the phone they can usually see the issue pretty quickly. Don't just pay it - you're right that this would be double taxation.

I went through this exact same scenario last year with my NSO stock options and you're absolutely correct to question the CP2000 notice. The IRS receives a 1099-B from your broker showing the gross proceeds from the stock sale, but they don't automatically know that part of your "gain" was already taxed as compensation income when you exercised the options. Here's what worked for me: I responded to the CP2000 with a detailed letter explaining that the $49,000 (or whatever your exact amount is) shown in Box 12 Code V was already included in my Box 1 wages and subjected to income tax withholding. I included copies of my W-2, my final paystub showing the stock option exercise as taxable wages, and the brokerage statements showing the exercise and subsequent sale. The key is completing Form 8949 correctly - you need to show that your cost basis includes the amount already taxed as ordinary income. In Column (e), your basis should be the fair market value at exercise (which equals the amount in Box 12 Code V), not just what you paid for the options. Don't pay this assessment! The IRS accepted my explanation and the proposed tax was reduced to zero. This is a common mix-up with stock options, and once you provide the proper documentation, they usually resolve it quickly.