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Help Needed on Tax Question

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jonnycashusa

Junior Member
Hi All,

I received a letter from IRS telling me that I owe them $1500.00 from the securities that I own in the stock market. I hope I can explain this. I opened an account 2 years ago and invest $2000 in the stock market. I was buying and selling stocks online but I never earned any money and I lost most of it. The letter I received shows that I have $10.000 worth of stocks and they want me pay the tax out of it with the interests. This $10.000 is not the money that I earned over two years. It is the sales activity and if yoo add them up it comes to $10.000 and some change. I never earned money from the stocks why should I pay tax from something that I never earned. How can I fix this mistake. Please guide me on this matter I appreciate any help. Thanks.

PS. I never filed anything on my tax return as I lost money.

Jonny
 


tranquility

Senior Member
With some exceptions (day traders--this would not apply to you), you need to report every sale as a seperate event. On sch D, you report the purchase date, the sale date the amount paid and the amount realized. (Sometimes people put a summary on the schedule and attach a sheet with the individual listing.) For the stocks the government is listing, give them the basis of the stocks to reduce the amount of capital gain income they are assessing. They may require proof because you didn't put it down on the original return, so make sure you have your statements.
 

ShyCat

Senior Member
You'll need to file amended returns for 2005 and 2006, including a Schedule D with all the purchases and sales for each year. The brokerage provided 1099-Bs to you and the IRS showing sales proceeds of $10000+. You need to provide the IRS (via Schedule D) with your purchase information and commissions paid, and thus calculate the actual gains and losses for each lot that you sold. Right now the IRS is saying you owe on $10000 because as far as they know (since you didn't report anything), you have a cost basis of $0. You have to prove otherwise.
 

LdiJ

Senior Member
You'll need to file amended returns for 2005 and 2006, including a Schedule D with all the purchases and sales for each year. The brokerage provided 1099-Bs to you and the IRS showing sales proceeds of $10000+. You need to provide the IRS (via Schedule D) with your purchase information and commissions paid, and thus calculate the actual gains and losses for each lot that you sold. Right now the IRS is saying you owe on $10000 because as far as they know (since you didn't report anything), you have a cost basis of $0. You have to prove otherwise.
Actually, that isn't what OP needs to do, at least not at this point. What the OP needs to do is fill out a schedule D for the years in question, as Tranquility stated, and submit that as a response to the letter received from the IRS. If the OP wants to go ahead and send an amended return with the letter as well...that's ok, but the OP shouldn't actually FILE an amended return. The amended return would be for informational purposes for the agent handling the letter.
 

efflandt

Senior Member
But if the OP had losses and could possibly get more refund from those years for losses (instead of owing tax), why would he not want to "properly" file ammended returns (and include copies of the filed 1040X's and schedule D's with the response that he was clueless)? If a 1040X after normal filing date results in a refund, the IRS also pays interest.
 

tranquility

Senior Member
Where do I sign up for the government interest program? Man, that would be better than a savings account or CD!

The reason why an amended return is inappropriate is that there are few greater hells than trying to straighten out a tax problem where one department has different information than another. The taxpayer could turn a problem which will be resolved in a month or two with one letter into something which will take a year, require multiple letters and communications, and will probably never be exactly right.
 

efflandt

Senior Member
Yes, I guess once flagged and contacted by IRS, it is best to work through that contact to find out what is required to resolve it.

When making a partial IRA to Roth conversion in 2005 I could not find the old form 8606 from early 1990's for non-deductable IRA contribution until end of 2006. So I filed 1040X and revised 8606 1/2007. For a $13.00 refund I got $0.88 interest (better than MM or CD for 9 months). That may seem hardly worth re-filing, but correcting 8606 IRA cost basis deducts $42 tax for 2006 ($169 from AGI) and more for future conversions.
 

jonnycashusa

Junior Member
letter of response

The letter i received says 'do not file ammended return' They need additional information and a explaination letter which supports that I shouldn't owe. What should the letter say? Can someone guide on this ? Should I writte It was becuase of my ignorance?
I really need help on this...I will include a 1099 from brokage company, monthly statements and Schdule D to show my loss. Please help me write my response.

Thanks everyone in advance.
 

tranquility

Senior Member
Something along the lines of:

The basis of the amounts listed in your letter were ommitted in error. Included is a schedule D with the specific stocks sold and their basis. This should change my liability and give me a (profit/loss) which was not reflected on my return.

Include a filled in schedule D or spreadsheet with the correct information.
 

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