Corrected 1099 Misc

I received a 1099 Misc last year for 80K for a domain name I licensed to a sports network. It reported the funds as nonemployee compensation.

I considered the 80K payment for selling the domain name and reported it as a capital gain. I tried to have the 1099 corrected to reflect a capital gain, but the company I was dealing with went bankrupt right before filing date. I attached a declaration statement to my return detailing that the 1099 was erroneous and that I was reporting it as a capital gain.

The IRS has contacted me and says I failed to report the 80K. I am led to believe they never saw the declaration statement as I filed electronically but mailed in the statement. Moreover, their letter says I failed to report it, not that I didn't report it properly.

I have tried again to contact some old employees of the network but can't find anyone who can vouch for the situation.

My question is regarding how I should deal with this situation and the IRS. Right now, all I can do is explain what I've explained here, but I'm afraid they will not agree. Any suggestions. Thanks Dave

I suggest you contact the person or number specified in your notice from the IRS and tell them exactly what you posted. The reason they believe you did not report the sum is that you did not report it where they have looked for it. They may disagree with you as to how to treat the amount once you tell them how you reported it, but I doubt they will claim that you did not report it.

As for the way you treated the income, there is a problem: if you licensed the name to them, then that is not a sale of the name and it is not a capital gain. Money you receive for a license is ordinary income, not capital gain. If you actually sold them the name, then there is a capital gain.