Investment Adviser Representative made mistake now I'm out $10,000

[Amybeth]

What is the name of your state (only U.S. law)? Michigan

I was using a financial adviser representative who is registered with the US securities and exchange commission so move some retirement investments around. I did not want to make any changes that would trigger a taxable event and he was aware and ensured me there was none. I have since received notice that I owe uncle sam $10,000 due to a taxable event triggered by my adviser. I have communicated this with my adviser and all he can say is oops, sorry, and wants me to close out my 401K to pay my new hefty tax bill. I do not feel that I should have to pay this penalty. What recourse if any do I have??

Help!

 

[LdiJ]

What is the name of your state (only U.S. law)? Michigan

I was using a financial adviser representative who is registered with the US securities and exchange commission so move some retirement investments around. I did not want to make any changes that would trigger a taxable event and he was aware and ensured me there was none. I have since received notice that I owe uncle sam $10,000 due to a taxable event triggered by my adviser. I have communicated this with my adviser and all he can say is oops, sorry, and wants me to close out my 401K to pay my new hefty tax bill. I do not feel that I should have to pay this penalty. What recourse if any do I have??

Help!

Your first step would be to consult a tax professional to make sure that you really do owe Uncle Sam 10k. Those letters from the IRS are often wrong because they rely on information provided by brokers that may not be accurate.

If it does turn out to be accurate then you need to realize that not all of it is a "penalty" the majority of it is going to be actual tax owed based on the transaction you made.

Unfortunately that doesn't mean that you have any recourse against the financial advisor. A financial advisor is not a tax professional. You should not have relied on tax advice from a financial advisor. You should have consulted a tax professional before making the recommended changes if you were concerned about tax ramifications.

And if you do owe Uncle Sam, its likely that you will owe MI also.

 

[tinaseals]

Malpractice By Registered Entity

That's Malpractice by the Registered Rep and Broker Dealer. There is insurance at the clearinghouse for that.

First of all you had to have a recorded statement of the trade being authorized.

Make sure you didn't give the rep authority to make changes to your account without your permission.

Also it may not be a taxable event as much as a sales charge, trade loss, or theft.

Do not cash out your IRA to pay the tax liability.

Also the tax liability could be the result of clearinghouse reporting errors that were detected in a federal or other audit.

 

[tinaseals]

General Tax Liability vs. Malpractice

RWhen dealing with financial instruments the math and tax accounting gets tricky. The best way to determine where your money went is to have a thorough, 3rd party, audit. Allow your records to undergo strict financial and tax scrutiny multiple times and you are sure to find the deficit/error.

It may be that your newly incurred tax liability is in fact a hidden drip or former issue, whether trade related or not. It could be the result of many things. If the broker is telling you to redeem your IRA, he's not a good investment rep, and either thinks your gull able, uninformed, or need to take immediate action, to cover him, the house, or you. A good rep would never tell the client to redeem shares for a liability he and the house created. That's unethical and immoral. Its malpractice. Either he thinks you can't get to the bottom of your trade history, or he knows you and is abusing the relationship, or he thinks your uninformed and is using it to cover his deeds.

A thorough financial audit, from the time you struck gold, is in order. Don't use friends. Use a reputable firm.

Find the error(s) creating the tax liability and go from there.

 

[OHRoadwarrior]

OP has not presented anything but conjecture to establish his facts. He needs to figure out what the facts are, before assuming.

 

[LdiJ]

OP has not presented anything but conjecture to establish his facts. He needs to figure out what the facts are, before assuming.

Which is why I told him to see a tax professional.

 

[davew128]

RWhen dealing with financial instruments the math and tax accounting gets tricky. The best way to determine where your money went is to have a thorough, 3rd party, audit. Allow your records to undergo strict financial and tax scrutiny multiple times and you are sure to find the deficit/error.

It may be that your newly incurred tax liability is in fact a hidden drip or former issue, whether trade related or not. It could be the result of many things. If the broker is telling you to redeem your IRA, he's not a good investment rep, and either thinks your gull able, uninformed, or need to take immediate action, to cover him, the house, or you. A good rep would never tell the client to redeem shares for a liability he and the house created. That's unethical and immoral. Its malpractice. Either he thinks you can't get to the bottom of your trade history, or he knows you and is abusing the relationship, or he thinks your uninformed and is using it to cover his deeds.

A thorough financial audit, from the time you struck gold, is in order. Don't use friends. Use a reputable firm.

Find the error(s) creating the tax liability and go from there.

When dealing with people who have an agenda, the best advice is to ignore the fool. Specifically those who claim the math and accounting regarding capital gains is tricky. Those people also tend to have trouble figuring out door knobs.

 

[RedemptionMan]

It sounds like your financial adviser triggered something alright, something that paid him commissions. What in the hell do people feel the need for financial advisers or planners for? I can not lump them all the same but any company that has a 401k has a system administrator (fidelity et. al. ) providing service for them. Given access to the system, you personally can track stocks, trade and look at historical data on any stock, mutual fund that you want to. I know that I can personally out perform any registered financial planner in this country as far as rate of returns go and I have to pay them ZERO dollars for a commission. When you deal with financial planners it brings other factors into play, You will have to go through the statements and maybe even a financial services attorney to look into things for you. You need to talk with the FP and find out exactly what trades where made and where the funds went (IRAs, CDs whatever). Good Luck.