Had a new client reach out to me due to receiving a CP2000 notice. Notice is showing that the taxpayer did not report any of their 2019 social security payments. Problem is the client was involved in an auto accident where a young man hit their car at a stop because he was texting and the payments were part of the lawsuit proceeds. This caused my client to have to get back surgery, etc. I pulled the transcripts and compared to the notice. The IRS is calculating that 27K of the social security payments are taxable. Here is where I need help:
Total Payments: 231,712
Repayments: 148,956
2018 Workman Comp Offset: 18,684
2017 Workman Comp Offset: 7,630
#1) If I plug the 231K less the 148K in repayments, I get close to the IRS's calc. However, shouldn't I be factoring in the workman comp offsets as well?
#2) The client was under the "assumption" that the proceeds were non-taxable. Assuming I need to follow-up with her attorney to double check this?
Thanks!