Hi. I just got a lovely note from the IRS that says I under reported income by $97000 in 2018. They provide an itemized list and it’s riddled with errors.
Example: a stock sale where the the gross sale was $12,804, reported cost basis $7552 = $4684 profit, which I reported and paid tax on. IRS lists this totally wrong as a sale of $7552 “shown on return”, actual sale "reported by others"12,804 = I under reported by $5319. There’s a bunch of these, all wrong, that add up to $97k proceeds untaxed: pay up sucker. Even better, $9000 of that $41,000 is penalties and interest.
I’m going to start with Turbo, which I’ve used for years, and I pay the extra fee to cover errors and it’s their problem. But since there’s several parties (Me, Turbo, IRS, ETrade, my employer) providing info, I may need an attorney.
Contact the IRS. https://www.irs.gov/
It’s very suspicious that they’re giving you so little time to pay up with no previous contact. Are you absolutely sure it’s from the IRS? DO NOT CALL ANY PHONE NUMBERS ON THE LETTER. Same goes for any form of contact info.
Oh, and re the $41k demand by Oct 8, I can return the form saying I disagree, along with documentation, but interest will continue to accrue on that $41k while I dispute.
I do, in the form of a “Stock plan transactions supplement” from ETrade that shows all the transactions with sale, gain, cost basis, adjusted cost basis, adjusted gain (loss). It looks like I never reported the adjusted figures and actually overpayed tax on the proceeds. Total proceeds, adjusted are $39k, unadjusted were $58k, where the IRS thinks I made $130k.
I’m just not sure if this document will wash, since it’s not a 1099x and says “this document provides you with additional information about your 2018 Stock Plan Transactions which is not reported to the IRS on your form 1099-B”, to which I say “why the hell wasn’t it reported?” I’m not sure what I did wrong to end up in this cul de sac, I reported my 1099s and every other piece of paper I had.
For clarity, there’s two types of transactions for that year:
Employee stock purchase, where I could buy my companies stock with after tax dollars. e.g. I’d by $12k of stock with money I paid tax on, the cost basis is what I paid for the stock with my after-tax money. Profit is what I paid + if the stock went up. Gains were pretty small here. The IRS thinks I should pay tax on my after tax income that I used to purchase the stock as a gain.
Employee stock. Cost basis is $0 in theory, but shares are withheld at a 40% range, so my cost basis is 40% of the stock price when it’s withheld. I sell the stock immediately so the gain is %100-40% minus stock fluctuations price, so the gain again is quite small: I’ve paid the taxes because they were withheld.
If you can explain it and have the documentation and are sure you are right, write a letter in response, put in any forms that you have corrected, copies of all documentation that support your claim, and mail it all off. I did this about fifteen years ago (I was in a panic and called an old tax prof - this was his advice - after he said “breathe, this really isn’t a big deal” - so breathe, this really isn’t a big deal) and about three months later got a letter that said functionally (in IRSese) “we are good” - no penalties were assessed. It was similar cost basis stuff - and I had filled out the form wrong.
If you think they have something, then contact a tax attorney or an enrolled agent, bring your documentation and have them write the letter. They’ll know how to get as much waived as possible and get you on a payment plan.
My recommendation is to find an Enrolled Agent. They don’t have to be an attorney and are authorized by the IRS to negotiate responses, collections, etc. Generally, they have a lot of experience with (relatively) less complex issues that don’t require interpreting the tax code).
My tax preparer is an enrolled agent and this has come in handy when dealing with mistakes like this on the part of the IRS.
Thanks. “Breathe” is good advice - I’m awfully stressed by this.
What’s really weird about the IRS claims is they’re saying I claimed, say “$7552” as the proceeds, where what I claimed was $12804 and the cost basis was $7552. Every single item of eight on the list has this backwards: the cost basis* as reported proceeds. Seriously, WTH?
What’s even weirder is they have individual transactions itemized. 1099’s don’t work that way: they report total sales and taxable gains, not individual sales. So I didn’t report any itemized thing. I need to get on the horn w Turbo and see what they think I reported, because none of this is on my return. Possibly my employer misinformed the IRS? I’d have less luck speaking with our payroll people than the feds: they only answer emails with a usual 2-3 week delay.
*And in fact the cost basis was wrong if I reported it that way: the adjusted cost basis on that specific $12804 was in fact $12190, so my profit was $613. Kids, always report your supplemental 1099!
So they are consistently wrong. That is good if you prove on one you proved it on all eight. I deal with this type of things when balancing corporate budgets with teams overseas, just start out by saying you don’t agree and show them the error in their calculation. These are lower level big spreadsheet people and they have made an error, don’t start by excusing them of being evil or stupid. It may just go away if your response is logical and cordial.
But you should! Just start out nice and cordial and let it slowly build up to total rage where you point out each of their faults in minute detail and then excuse them for being evil and stupid assholes!
Agreed. I dealt with one six years ago about another matter. I’m hoping Turbo will connect me with one since I pay the extra “we’ll protect you if we fucked up your return!” fee every year.
If you feel you need to ask for advice on a tax issue of this magnitude, I don’t think this message board is the best place to do that. There are people like me who are tax professionals that can answer certain questions about tax law or procedure, but your question is very specific to exactly the situation that prompted that letter. I can’t give you any detailed advice without seeing the letter, your tax return you filed that they are correcting, the 1099 packet, and perhaps other relevant documents that I might think you have after I see those. All I can say is to follow the directions on the letter, and if you need any more help than that, engage the services of a CPA or EA.
