double taxed?

[playfun]

What is the name of your state? New Jersey

In 2003 I won a lawsuit and had to pay IRS $333,000 in taxes in 2005. I went to a broker to find out where I can put the money until I am to pay the taxes on my lawsuit. Now, he advised me to purchase CD's. I did. In 2005 I withdrew the money and paid my taxes. $333,000. Now, I get a letter that stated it was reported as income to the IRS by the bank I brought the cd's from and I may have to pay taxes on the money.
I have to reply by January 25th if there finding is correct or if I disagree. I totally disagree. The money wasn't used as income it was withdrew to pay my taxes. Every dime of it I withdraw went to IRS. The question.... Can they make me pay taxes on monry I withdrew to pay IRS? Is there any way to make them understand what the moner was used for?
I asked the broker to give me a letter to help me out and of course he said he would call back but didn't. I am going nuts here.

[seniorjudge]

Of course it's income. How could you think otherwise?

You had the dough; you pay the taxes on the interest and the principal you had.

[efflandt]

Banks are obligated to report suspicious activity (SAR), and to them you suddenly depositing $333k may have looked unusual and suspicious. That does not mean you have to pay double tax on it if the source reported it and/or you properly pay tax on it. Although, you will have to pay tax on interest earned (regardless of when it is withdrawn).

[LdiJ]

Originally Posted by playfun

What is the name of your state? New Jersey

In 2003 I won a lawsuit and had to pay IRS $333,000 in taxes in 2005. I went to a broker to find out where I can put the money until I am to pay the taxes on my lawsuit. Now, he advised me to purchase CD's. I did. In 2005 I withdrew the money and paid my taxes. $333,000. Now, I get a letter that stated it was reported as income to the IRS by the bank I brought the cd's from and I may have to pay taxes on the money.
I have to reply by January 25th if there finding is correct or if I disagree. I totally disagree. The money wasn't used as income it was withdrew to pay my taxes. Every dime of it I withdraw went to IRS. The question.... Can they make me pay taxes on monry I withdrew to pay IRS? Is there any way to make them understand what the moner was used for?
I asked the broker to give me a letter to help me out and of course he said he would call back but didn't. I am going nuts here.

If that letter came from the IRS, then you need to get your tush to a tax professional ASAP. Its not income to you, (or rather most of it is not income to you) but if the IRS is stating that its potential income, then it needs to be handled carefully. This IS NOT a do it yourself project.

What is most likely is that you did not actually purchase CDs even though that is what you believed you purchased. Why? Because a bank would not issue a 1099 and provide the IRS a copy based on someone cashing in a CD....not for the entire amount. A bank would only issue a 1099 for the interest paid to you.

Its more likely that you purchased into a fund of some sort...and then cashed it out. When that happens the fund issues a 1099B which acts as if the entire amount is income to you. It is your responsibility to report that on your tax return on a Schedule D, outlining the gains and losses that happened within the fund, with the net result being that you owe taxes on your overall net gain.

A tax professional can help you sort it out, and help you provide the necessary information to the IRS so that they record the transactions and the income/loss properly. A tax profession can also get you an extension to respond to the IRS, in case you can't pull everything together by the 25th of January.

Do not panic...but don't take this lightly either. In the end it will all get sorted out, but you need a professional to assist you. You do not need a high priced tax attorney or a CPA, you need either an EA or someone very experienced with capital gains.