Well, the ask was more of a “what professional should I start with?” like an attorney or tax pro or whatever, which seems pretty appropriate for a message board. With a side of “what would you do?” which is why the thread is in IMHO.
I’ve been screwed over by the IRS so my advice is simple, get a lawyer, call your congressman, and do not trust the IRS under any circumstances. Do not sign anything, do not tell them anything, only communicate with them through your lawyer. I do hope this is simple mistake that can be cleared up and not an IRS scam to cover up their internal losses.
I had a business I would sometimes get such letters in regards to that. All were given to the accountant, but all started with the same line “We disagree with your” assertion/calculations/ or similar". I don’t know why, but it does make some sense legally to do so (not admit fault, letting them know that what they say is not accepted etc.) and could place additional burden on them, if it’s just to read your reply and have to re-respond, which the agent may be looking for easy money and doesn’t want to waste their time. However all those for me were small amounts and I would say not worth the time and price of postage and they would rather cut their losses and just accept our proposal of no taxes owed.
If it were me, I would try to work it out with the IRS before hiring lawyers or accountants. Though it may be a bit more difficult at this time, as the IRS has been very short-handed what with covid and processing stimulus money. But these people are not free, and it looks like the items you’re disputing are pretty straightforward typo type stuff. If the IRS is not amenable to fixing it on their end, then you can possibly hire professionals at that later point.
If it turns out that you overpaid, then you can file to get that money back, plus interest. So it could work out for the better in the end.
Do you have a good understanding of how this should have been taxed, how you reported it, and good records to support your assertions? Are you certain you got it right? If so, you can respond to the IRS in writing. If not, hire an attorney or (as suggested below) an accountant or enrolled agent knowledgeable about tax law might be a good idea. Do so quickly because the IRS doesn’t give you long to respond.
You definitely want to contest their changes. Explain, as clearly as you can why you are correct. Send copies of your supporting documentation. “Bates number” the pages of your submission so you can refer to particular pages in your correspondence efficiently. Highlight the particular numbers you are relying on to defend your assertions (this was suggested to me by an IRS auditor).
Starting in 2018, I had to convince the IRS that my father-in-law did not withdraw over $100,000 from his retirement plan. MY father-in-law did a series of rollovers from a retirement plan to a Well Fargo Bank IRA, then from the bank IRA to an IRA at Wells Fargo’s broker, and then from their to Vanguard, all within a few months. The IRS picked the amounts of these rollovers at random and either decided they were taxable, or sometimes generously subtracted one number from the other and decided only the difference was taxable. In the end, the problem was Wells Fargo misclassifying the rollover from the bank to the broker-dealer as a taxable distribution. We got them to issue an amended form to the IRS and they finally went away. It took four letters, several phone calls, and over seven months of time during which the interest would have kept accruing had we not convinced them we were correct.
Please update me with how this goes. I’m really curious whether TurboTax will just say, “We reported everything correctly based on what you told us, so we’re not offering any help. This isn’t our mistake. Good luck!”
This is confusing. Can you explain more clearly what you are claiming the cost basis and sale proceeds are; and what the IRS is claiming?
I’m curious about how TT help works in this situation as well. We’ve had unusual tax returns the past 2 years (large medical deductions, and thus large refunds) so I’ve actually ponied up the extra “we’ll deal with them” fee both years. That, plus the fact that both years we had stock sales to fund the medical expenses, seems like it would put us in a higher audit-risk bracket.
We have only had direct dealing with the IRS twice. Once, years back, when they sent us a letter claiming we owed an underpayment penalty. We talked with a family friend (tax accountant) who looked at our return and wrote a letter saying that we’d filed separately the previous year, and if we’d filed separately in the questioned year, the penalty would not have applied due to the “has to be at least x% of last year’s tax” rule. We sent them a copy of that letter and they went away.
The other time was when I had pretax money withheld for childcare - so I thought I did not have to file a specific form. They actually phoned me, I gave them the info over the phone, and all was good.
Anyway - the IRS can be assholes, but they can also be reasonable. They’re in the business of enforcing the laws, and you’re not planning on trying to dodge legitimate fees, just ensure that everyone is on the same page.
If you’ve got good documentation of the figures (and pay stubs etc. that prove that employee stock withholding numbers might be good to have handy) they should be good with it. If they are NOT, then you definitely want to bring in an expert.
Even if you DID owe the money (and I trust you when you say your numbers are right and theirs are wrong), they’d rather work with you on a repayment schedule than make your life complete hell.
This is exactly why I get an accountant to do all my tax stuff. I can let him sort this all out.
I can’t speak for the OP but my father-in-law had an accountant who offered him absolutely no assistance in dealing with the IRS. Ironically, the IRS inquiry may have been avoided if my father-in-law’s accountant had flagged line 16a as a rollover. TurboTax does this automatically if you tell it that the distribution is a rollover.
You should have itemized the transactions. The 1099-B should have itemized out the transactions and then you should have filled out and submitted an 8949. If your return doesn’t have an 8949, start by filling that sucker out right now. Also, if these are options or grants ( I think you said they were) its tricky to fill out that form correctly. That was what tripped me up - I filled out the 8949 incorrectly for stock grants.
Once again, if you are sure you are right, and you are sure you can explain it, you can probably handle this yourself. If you aren’t sure, take it to an EA - I think you and I both did the same thing, and my tax prof who talked me through the letter said this isn’t uncommon - the EA probably has a form letter on his PC to send off once the paperwork is corrected and the documentation assembled. And probably worth a few hundred dollars to push this onto someone who works with the IRS regularly. But don’t miss that deadline waiting for TurboTax to meet their “we will represent you” guarantee, belts and suspenders with IRS deadlines - look up a tax provider locally and start there now.
(And continue to breathe, if it helps, mine was close to six figures in “you need to pay us.”)
Withheld in the sense of withheld taxes? Then I don’t think this is correct. Your gain is 100%, but when you file you have the 40% added to your tax payments for the year. When I take IRA money out I get 10% withheld, but the tax is on the entire amount. (I’m well past the age for penalties.)
I didn’t notice you saying that you checked what actually got filed in TurboTax. I’ve found this section sometimes difficult.
True that the 1099 is a summary, but I use H&R Block and was able to download the individual transactions from my broker, so I could check them against the details. There were more than 100.
Just some questions - I agree that a professional should look it over.
40% of the actual shares of stock were withheld at the time they were disbursed to me, and presumably sold and the proceeds given to the IRS. I sold them immediately so there wasn’t any additional gain to tax, for example if the stock went up after disbursement.
Of course it’s confusing. The IRS has this backwards and sideways. I buy ESPP shares with some of my salary. That specific item was me paying $7552 for company stock, the shares went up to $12804 when I sold them. So my net was $4684. The IRS is claiming my net was $12804, ignoring the cost basis.
Yes, that is the right way. You dont have to hire a Tax Attorney or Enrolled Agent- yet.
See what they say in response to your letter.
Well, so far they’re taking it seriously. I called this morning, immediately got an enrolled agent who confirmed I’d paid for audit protection in 2018, and sent me to another group, their tax audit team. I’ve uploaded my return, all of my 1099s etc from ETrade, etc, and will wait for further events. So far it’s pretty professional
The IRS gets more info upon request.
Turbo? As in turbotax? Wont help here, yet.
This is very bad advice, and will be very expensive.
Write the letter explaining, this costs nothing and is a good faith opening move.
If the IRS doesnt buy it, Hire a EA, they will represent you. It is doubtful that turbotax made the mistake here, but it is possible.
That is exactly what Turbotax will say.
BtW, you do not need a lawyer. Period. No one is accusing you of criminal tax fraud.
If a simple letter doesnt work, you need a CPA or EA.
You are still responsible for making sure the numbers the accountant puts on the form are right. A friend got hit with a nasty tax bill when the accountant they used transcribed some numbers wrong or forgot to list something - on the order of 30,000 bucks in taxes owed. I don’t recall the details of what happened - but she and her husband had to get a payment plan set up, as they genuinely owed taxes on whatever the thing was.
Agreed try to straighten this out yourself first and see where it goes. Deny their assessment and give reasons why. Cost you nothing and buys you time.