← Back to all resources

Fixing RSU and ESPP Cost Basis, and Answering a CP2000 Notice

Your RSUs vested, you sold some shares, and you filed. Months later, an IRS letter says you owe tax on a “gain” you already paid tax on as wages. This is a common problem, and it can usually be fixed with the right records.

New to how RSUs and ESPP shares are taxed? Start with our RSU and ESPP tax guide.

Why the Gain Looks Too Big

When RSUs vest, their value is included in your W-2 wages, and that value becomes your cost basis.

The problem is Form 1099-B. Under IRS broker reporting rules, brokers can’t add compensation income from equity awards granted after 2013 to reported basis. So it often shows $0, no basis, or a basis that doesn’t match your vest value.

Used as-is, your whole sale price can look like profit, taxing the same dollars twice: as wages and as a capital gain. The IRS says adjusting the basis on Form 8949 is your responsibility.

Step by Step: Finding Your Correct Basis

1. Gather broker documents for the year you sold from your stock plan account (often E*TRADE / Morgan Stanley at Work, Schwab, or Fidelity):
   • Form 1099-B (often part of a consolidated 1099)
   • Supplemental statement or “supplemental information,” often listing adjusted basis for stock plan shares
   • Realized gain/loss report
2. Pull vest (release) confirmations, which generally show the vest date, shares released, value per share at vesting, and shares withheld or sold to cover taxes.
3. Match each sale to its lot. Each vest is a separate lot with its own basis and holding period.
4. Figure the basis per lot: generally the value per share at vesting × the shares sold from that lot (the amount already in your wages).
5. Check it against your W-2. RSU income should be in your W-2 wages (some employers also show it in box 14). If the numbers don’t connect, sort that out before you file.

How the Fix Is Reported on Form 8949

Box 12 on your 1099-B shows whether basis was reported to the IRS. The Form 8949 instructions treat the two cases differently.

If basis was reported to the IRS, but it’s wrong

• Use Part I, box A (short-term) or Part II, box D (long-term).
• Column (e): the basis exactly as shown on the 1099-B, even if wrong.
• Column (f): code B.
• Column (g): the adjustment. If the correct basis is higher, enter the difference as a negative number in parentheses.

A simple hypothetical: 100 RSU shares vest at $150 each ($15,000 in your W-2 wages), later sell for $16,000, and the 1099-B reports $0 basis.

Your taxable gain is the $1,000 of growth after vesting, not $16,000.

If basis was not reported to the IRS (box 12 not checked)

• Use Part I, box B or Part II, box E.
• Column (e): the correct basis.
• Column (f): code B.
• Column (g): -0-.

Either way, keep your vest confirmations and supplemental statements in case the IRS asks how you got your numbers.

Already Filed With the Wrong Basis?

Correct a filed return with Form 1040-X, the amended return.

• Attach the corrected Form 8949 and Schedule D, and explain the change in Part II of Form 1040-X.
• File a separate 1040-X for each year you’re correcting.
• Check your state return. It may need to change too.
• Mind the refund window: generally 3 years after the original return was filed or 2 years after the tax was paid, whichever is later.

Already received an IRS notice about that year? Respond to the notice instead of filing a separate amended return on your own.

The CP2000 Notice: What It Is and What to Do

What it is

A CP2000 is sent when income information from employers and financial institutions doesn’t match your return. It’s a proposal to adjust your return, not a bill.

Stock sales are a frequent trigger. If a sale was left off, or the IRS’s matching relies on a $0 or missing basis, the proposal may treat much of the proceeds as taxable gain.

A CP2501 is a related, earlier mismatch inquiry. If you agree with it, or your reply doesn’t resolve it, a CP2000 may follow.

How to respond

1. Read the whole notice: what you reported, what was reported to the IRS, and the proposed changes.
2. Reply by the date on your notice (IRS Document Upload Tool, fax, or mail, as the notice explains), with the signed response form stating whether you agree.
3. If you disagree, include a signed statement explaining why, plus supporting documents. For a basis issue, that’s typically your vest confirmations, broker supplemental statement, and a corrected Form 8949.
4. If the notice is correct and you have other income, credits, or expenses to report, the IRS says to complete Form 1040-X, write “CP2000” at the top, and send it with your response.
5. Check prior years. If an earlier return has the same problem, the IRS suggests amending it too.

Don’t ignore it

Without a reply or resolution, the IRS may send another notice and a bill, and eventually a Statutory Notice of Deficiency. Interest accrues on any tax actually owed until it’s paid.

Need more time? Send an extension request.

ESPP Shares: The Same Basis Problem

ESPP sales carry the same double-tax and CP2000 risk. The 1099-B basis often reflects only your purchase price, but any ordinary income from the sale is added to your basis:

• Disqualifying disposition (sold before the holding periods are met): generally, the purchase-date value minus what you paid.
• Qualifying disposition: generally limited, under a different formula.

Our companion guide explains both. To get it right:

• Use Form 3922 for the offering date, purchase date, prices, and values.
• Use your broker’s supplemental information for adjusted basis per lot.
• Check whether the ordinary income is already in your W-2 wages.
• Report the correction on Form 8949 under the same box 12 rules.

Frequently Asked Questions

How Insight Tax Helps

• An Enrolled Agent. Jon is an Enrolled Agent, federally authorized to practice before the IRS. Enrolled Agents can represent taxpayers before the IRS.
• A fixed-fee proposal, generally within two business days.
• No payment needed to request a quote.
• RSU/ESPP pricing depends on how many lots you have, confirmed in your proposal.
• Amendments, prior years, and notices are quoted based on the work involved.

A 1099-B that doesn’t add up, or a notice that just arrived? Tell us what happened.

Request your quote

This page provides general information only and is not individual tax advice; please consult a tax professional about your situation.