Disallowed American Opportunity Tax Credit (AOTC) IRS Audit

By | December 17, 2014

What will happen if someone receives a CP2000 with a proposed assessment of $2,500 + interest?

The notice indicates you claimed the American Opportunity Tax Credit (AOTC) on your return, and the Service is proposing to disallow the credit.

If this is the case, I suggest you review the Form 1098-T from Kaplan University (or contact them if you did not receive one).

Also, have a look here at the eligibility rules for claiming the AOTC. If you don’t meet all the rules, you were not entitles to claim the credit and you will have to repay the credit you claimed, plus interest.


Disallowed American Opportunity Tax Credit (AOTC) IRS Audit

If you do meet all the rules, it may be an issue with the employer and how they reported your payments to them in 2012. If you determine the notice is correct and are unable to pay in full by the response due date, you may request a payment plan, called and Installment Agreement (IA). With a balance due of ~$2,600, your minimum monthly payment will be about $37.00. The IA has a one-time user fee of $120. You may qualify for a reduced fee of $43. Failure To Pay (FTP) penalty and interest accrue on the unpaid balance due, so try to make the largest payment you can afford each month.


Requesting Direct Debit Installment Agreement (DDIA)

You can choose to request a Direct Debit Installment Agreement (DDIA) on the form by including your checking account RTN and Account number. The fee would be reduced to $52, or the $43.

If your balance due can be paid in 120 days or less by your refund from your 2014 tax return, consider a Full Payment agreement instead of an IA. The Full Payment agreement is a payment plan with no user fee and no fixed monthly payments. After you receive your first notice asking for payment (the CP 2000 is not a bill, and you will receive another notice before the tax and interest is assessed), you can request up to 120 days to pay the balance due, plus the accruals of Failure To Pay (FTP) penalty and interest. During the 120 days, you can make payments at any time, or make one payment on day 120 to complete the agreement. If your 2014 refund pays the balance, you are done.