How to fix error on old taxes...? (Full Version)

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miasma -> How to fix error on old taxes...? (6/18/2008 3:03:02 PM)

The gist (or the sense I've made of it, anyways):

A few years ago I sold my mutual shares - at a loss - and paid off my student loan with them.

The IRS is saying I didn't claim it as income. Which I didn't. Because it wasn't.

I can't, of course, get a hold of an actual person to talk to.

Anybody have any idea what I'm talking about, and/or how to go about resolving it?

Their website isn't at all helpful. Except to give me numbers to call, which give me more numbers to call.



truthrevealed -> RE: How to fix error on old taxes...? (6/18/2008 3:20:22 PM)

There is a way to amend a tax return but I'm not sure how far back you can go. If you browse the irs site and look into amendments it may help not sure. Hope you find the answer you're looking for.



GroupW -> RE: How to fix error on old taxes...? (6/18/2008 3:26:28 PM)

quote:

ORIGINAL: miasma

The gist (or the sense I've made of it, anyways):

A few years ago I sold my mutual shares - at a loss - and paid off my student loan with them.

The IRS is saying I didn't claim it as income. Which I didn't. Because it wasn't.

I can't, of course, get a hold of an actual person to talk to.

Anybody have any idea what I'm talking about, and/or how to go about resolving it?

Their website isn't at all helpful. Except to give me numbers to call, which give me more numbers to call.

You should have been supplied with a response form. Usually it's sufficient to explain what happened and include documentation of your cost basis in the mutual fund. Chances are, when you originally filed, you neglected to include the sale on your taxes and now the IRS is comparing your mutual fund company's IRS reporting to your tax return. By not including the sale on your taxes, the IRS is probably assuming a zero cost basis on the sale and 100% of the sale proceeds as income.

Given that you booked the loss, you might need to amend that year's tax to reflect the lower taxable income as well as possibly the next year or two depending on how much of the loss you would have been allowed to carry over.

If you're not comfortable doing all this, and depending on the amount in question, the services of a tax profession might be worth the cost. Most people can handle this sort of thing on their own though.



APZR -> RE: How to fix error on old taxes...? (6/18/2008 3:43:17 PM)

Things like this are why I have a CPA to handle all of our stuff. I'm constantly getting letters about "you failed to file this"...
I just email our CPA, she pulls out the proof, and sends a response letter.



GroupW -> RE: How to fix error on old taxes...? (6/18/2008 3:47:16 PM)

quote:

ORIGINAL: APZR

Things like this are why I have a CPA to handle all of our stuff. I'm constantly getting letters about "you failed to file this"...
I just email our CPA, she pulls out the proof, and sends a response letter.

Particularly if the CPA signs the form. Then the CPA is on the hook and not you (assuming you gave the CPA all the information the CPA needed.)



miasma -> RE: How to fix error on old taxes...? (6/18/2008 4:10:50 PM)

Well, obviously it would be just lovely to be able to afford to pay someone to handle it for me, but that's not an option.

I did return the response form, but it was only "I agree" "I do not agree."

I will look for the "amendments" section, thank you.



metoo -> RE: How to fix error on old taxes...? (6/18/2008 6:43:35 PM)

quote:

ORIGINAL: miasma

I will look for the "amendments" section, thank you.


There will not be an "amendment" section on the form from the IRS. You need to file an amended tax return for that year, which is form 1040X.



Random -> RE: How to fix error on old taxes...? (6/19/2008 11:35:39 AM)

You have gotten good advice -- you need to file Form 1040X.

As to the actual issue, it sounds like what happened is that you knew you had a loss, so you didn't report it at all. That is a mistake, because you can actually deduct some of that loss. Filing 1040X will not only help with this issue, it may also get you some money back.

What the broker reported was net proceeds, in other words, the amount of the check they sent you. You can subtract from that the amount you paid for the mutual funds. It sounds like the net of the two is a loss, from your OP.

One note, I would not file 1040X right now, since they are already reviewing the issue. Work with the person by phone or mail and explain the situation. Once it is resolved they will tell you if should file the 1040X at that time.



GroupW -> RE: How to fix error on old taxes...? (6/19/2008 5:21:58 PM)

quote:

ORIGINAL: Random

You have gotten good advice -- you need to file Form 1040X.

Agreed.

quote:


As to the actual issue, it sounds like what happened is that you knew you had a loss, so you didn't report it at all. That is a mistake, because you can actually deduct some of that loss. Filing 1040X will not only help with this issue, it may also get you some money back.

Agreed again.
quote:


What the broker reported was net proceeds, in other words, the amount of the check they sent you. You can subtract from that the amount you paid for the mutual funds. It sounds like the net of the two is a loss, from your OP.

Yup.
quote:


One note, I would not file 1040X right now, since they are already reviewing the issue. Work with the person by phone or mail and explain the situation. Once it is resolved they will tell you if should file the 1040X at that time.


4 out of 4! Listen to Random.

As far as paying the expert. Might not be an option for you, but a last resort if you need it. For the most part though, you can get through it on your own. Get the IRS publication on filing an amended return and get your response together & documentation. Shouldn't be too hard at all to get it resolved.



ChristianAttorney35 -> RE: How to fix error on old taxes...? (6/20/2008 9:30:19 PM)

quote:

ORIGINAL: GroupW

You should have been supplied with a response form. Usually it's sufficient to explain what happened and include documentation of your cost basis in the mutual fund. Chances are, when you originally filed, you neglected to include the sale on your taxes and now the IRS is comparing your mutual fund company's IRS reporting to your tax return. By not including the sale on your taxes, the IRS is probably assuming a zero cost basis on the sale and 100% of the sale proceeds as income.

Given that you booked the loss, you might need to amend that year's tax to reflect the lower taxable income as well as possibly the next year or two depending on how much of the loss you would have been allowed to carry over.

If you're not comfortable doing all this, and depending on the amount in question, the services of a tax profession might be worth the cost. Most people can handle this sort of thing on their own though.


This sounds very similar to what happened to me.

Two years ago, when I bought my first house, I placed $50k in a money market account to earn higher interest.

The IRS challenged my 2006 return, saying I didn't report basis, and then told me I owed them an extra $18k!!!

A money market is "essentially" a cash equivalent, which means the basis is basically what I put in.

Even though I am an attorney, I had my CPA file the correct documentation, and the IRS reduced it from $18,000 owed to $45 owed!!

While I understand hiring a tax professional can be expensive, you may be able to keep your costs in line by doing a lot of the "homework" yourself.



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