Money Market withdrawals - form 1099-B

[red86yota]

What is the name of your state? Michigan

My wife inherited about $25,000 in a money market account several years ago.

She recently recieved a letter from the IRS saying that her reported income for 2005 (she was single then) was different from what they had on file. The difference between the two were the withdrawals listed on 1099-B. She did report the interest from 1099-INT and dividends from 1099-DIV as income.

There is information on 1099-B saying that the withdrawals can be listed on Sched D as "certificate withdrawn at par with no capital gain or loss." Does this mean that these withdrawals should not add to her taxable income? She did make a mistake by filing a 1040A which does not allow for Sched D. Maybe this is what prompted the IRS to send a letter.

Thanks in advance for any help.

 

[moburkes]

She was the named beneficiary and she did not report the income, is that what you're saying? If so, why didn't she?

 

[LdiJ]

What is the name of your state? Michigan

My wife inherited about $25,000 in a money market account several years ago.

She recently recieved a letter from the IRS saying that her reported income for 2005 (she was single then) was different from what they had on file. The difference between the two were the withdrawals listed on 1099-B. She did report the interest from 1099-INT and dividends from 1099-DIV as income.

There is information on 1099-B saying that the withdrawals can be listed on Sched D as "certificate withdrawn at par with no capital gain or loss." Does this mean that these withdrawals should not add to her taxable income? She did make a mistake by filing a 1040A which does not allow for Sched D. Maybe this is what prompted the IRS to send a letter.

Thanks in advance for any help.

She needed to report the income and "basis" on schedule D. This is a common error made by many people. There is no capital gain or loss because her "basis" is the same and the proceeds, but the IRS doesn't know that. All the IRS knows is that a 1099-B was issued for the amount of the proceeds. Therefore, until she officially tells them differently, they are going to assume that she owe tax on the proceeds.

Your wife needs to take the letter that she received from the IRS, and a copy of her 2005 tax return, and she needs to go see a tax professional. They can fix this for her very easily. She does not need to see a high priced CPA, just an experienced tax professional.
Call around to your local tax offices and tell them that she needs help with a CP-2000 (that is what the letter is called).

 

[red86yota]

LdiJ

Thank you for the response. This is exactly what I thought - since she did not file the Sched D, the IRS did not know that there were no capital gains on the amounts reported on 1099-B.

She got a similar letter (CP-2000) for 2004's taxes where she just paid the taxes without doing some research. Can we file an ammended return to fix that?

Thanks a lot!

 

[LdiJ]

LdiJ

Thank you for the response. This is exactly what I thought - since she did not file the Sched D, the IRS did not know that there were no capital gains on the amounts reported on 1099-B.

She got a similar letter (CP-2000) for 2004's taxes where she just paid the taxes without doing some research. Can we file an ammended return to fix that?

Thanks a lot!

Yes, you can file an amended return to fix that. Again, though, use a professional, it will be much easier and worth the cost. However, call around for quotes. You don't need to be paying big bucks to a CPA or a tax attorney. If you get quoted more than 100.00 per year, call around for more quotes.

Please realize though that it needs to be handled promptly. 2004 will expire within the next year and 2005 will get tricky with the IRS if you don't handle it promptly. Get it done ASAP.

 

[benniebull]

Just call the IRS to fix this problem

I just got a CP2000 from the IRS for the exact same issue as mentioned in the beginning of the thread. During 2005 my wife and I had an Ameriprise Financial Certificate that was transferred. We got a 1099-B showing the transaction. The form also said to put the following on a schedule D, Form 1040: Certificate withdrawn at par with no capital gain or loss."

For some silly reason, I neglected to submit a Schedule D with this information on it. Of course, now the IRS is seeing the discrepancy. They have no reason to know that that the amount reported on the 1099-B is not a capital gain, because I did not tell them that it wasn't!

Anyway, I simply called the IRS at 1-800-829-3009 and after wading through the various menus got a very helpful person on the line who verified my identity, listened to my explanation, and then said that she would close the case immediately and that we would not owe any tax or interest. She said that she would send us a letter to confirm all of this. I took her name and ID number just for future reference. But, it was pretty simple to fix this one over the phone. However, once I get the letter in the mail, I'll breathe a bit easier.

 

[LdiJ]

I just got a CP2000 from the IRS for the exact same issue as mentioned in the beginning of the thread. During 2005 my wife and I had an Ameriprise Financial Certificate that was transferred. We got a 1099-B showing the transaction. The form also said to put the following on a schedule D, Form 1040: Certificate withdrawn at par with no capital gain or loss."

For some silly reason, I neglected to submit a Schedule D with this information on it. Of course, now the IRS is seeing the discrepancy. They have no reason to know that that the amount reported on the 1099-B is not a capital gain, because I did not tell them that it wasn't!

Anyway, I simply called the IRS at 1-800-829-3009 and after wading through the various menus got a very helpful person on the line who verified my identity, listened to my explanation, and then said that she would close the case immediately and that we would not owe any tax or interest. She said that she would send us a letter to confirm all of this. I took her name and ID number just for future reference. But, it was pretty simple to fix this one over the phone. However, once I get the letter in the mail, I'll breathe a bit easier.

You got lucky. This is not normally something that the IRS is willing to fix on the phone. Even if the OP would also get lucky, that applies to the more recent letter. It does not apply to the amendment that has to be done for 2004.

 

[abezon]

Send the IRS a letter saying this was a cash money market account & copy of the 1099-B letter showing that the money was "withdrawn at par."

Don't file an amendment unless the IRS requests it. The CP 2000 letter comes from the income matching division, & they prefer documentary evidence. This division appears to have a competant individual or two on staff.