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  1. #1
    Join Date
    Mar 2012
    Posts
    2

    Default IRS Suspects Underreported Income After Failure to File a 1099-R

    Hi All,

    I am having a problem with the IRS. For the tax year 2009 I actively traded stocks (and lost money in the end), but the IRS mistook all my sales for being income since I didn't include a 1099R brokerage statement. This past year I got a letter saying I owed the IRS thousands of dollars, since they viewed all the stock sales as being income, which they weren't. So, I responded back to them telling them what happened, but (not surprisingly), the Infernal Revenue Service wasn't much help. This has been exacerbated since I am teaching overseas and it has been hard for me to fight the charges. They sent me a Waiver (of Deficiency? I forget it's name) and they gave me 3 months to respond, which I did a couple months ago. Thus, recently I received an IRS letter which was signed by the head IRS people and it was a summation of admittals and denials based on what I responded in my deficiency waiver. Also, this past Friday I spoke with a woman from the IRS who said I would need to contact the Underreported Income section, which I did, but I waited on hold for 15-20 minutes with no answer (I live in Vietnam now, so it is harder to get in touch with them during business hours). She said a tax professional would need to do a cost analysis breakdown or something, which shows all the stock sales and how much each one brought in gains and losses wise. Could my broker have a copy of that statement? Thus, I have been stressed out this weekend and feel I am on the verge of an ulcer or a heart attack (okay, maybe not that bad), and don't know what to do next. I don't return to the States until June. In a nutshell, my issue is the IRS is stating I owe them thousands of dollars from underreported income in 2009, but it's a simple matter of them not accounting for the stock sales, which equated to the underreported income amount. Thus, I want to fight back legally, and not owe them thousands of dollars, since I honestly never had as much income as they said. Also, I worry the IRS may do a "final ruling" where I get screwed over and they say I have to pay the amount, which I shouldn't have to. Sorry, I know I'm repeating a lot, I'm just stressed out and not thinking as clearly. Also, I am a low-income earner who has been living abroad since August 2011, so I've been under duress, I feel, to answer the IRS within their deadlines, since it takes so long to mail documents here and back to the States. Any help would be appreciated, I'm confused as what to do, I know the IRS will try to scare me into paying and not fighting, but I want to know my options. Thanks!

  2. #2
    Join Date
    Sep 2010
    Posts
    9,270

    Default Re: IRS Suspects Underreported Income After Failure to File a 1099-R

    You need to respond with the proper Schedule D filing with all the individual sales and their basis. The IRS isn't trying to scare you into anything. Whenever they get a 1099 showing a payment that doesn't seem to be reflected in your filing, they just assumed you had no basis and it was all income.

    I had a similar fiasco when I switched brokerages. Ameriprise reported all the securities I transferred as sold and the IRS comes back figuring it all as income.

  3. #3
    Join Date
    Sep 2011
    Location
    OH10
    Posts
    13,391

    Default Re: IRS Suspects Underreported Income After Failure to File a 1099-R

    it's a simple matter of them not accounting for the stock sales
    Actually, it is a simple matter of you not accounting for the stock sales. When you claim deductions on your return, you are to retain records supporting your deductions. If you do not, it is at your peril.
    With enough thrust, pigs fly just fine.
    You may believe that you understood what you think I said. I'm not sure you realize that what you heard is not what I meant.

  4. #4
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    1,777

    Default Re: IRS Suspects Underreported Income After Failure to File a 1099-R

    Your broker only reported the proceeds from the sale. Until recently, they did not report how much you had invested in those securities. That is left up to you by filing Schedule D for what ever tax year is involved. Simply amend your return by filing form 1040X and include Schedule D. That should resolve the whole thing, but do it quickly. Now that you have received a 90 day letter you don't want to delay filing this. Doing so will establish your correct tax liability. Until you do that, the IRS has no idea what your gain or loss was so they assume it was all gain.

  5. #5
    Join Date
    Mar 2012
    Posts
    2

    Default Re: IRS Suspects Underreported Income After Failure to File a 1099-R

    Hi,

    Thanks for your two responses, I apologize, I was mad earlier at the IRS, but I see now it's not their fault. I need to submit the amended document, since I realize now it does show up as being all stock sales, and they have no basis to believe otherwise. I did submit the response to the 90 day Deficiency Waiver, then I got another IRS letter back. I now will get on it and do what is necessary to get the cost analysis, showing the gains and losses. Is there a way to get a time extension? What is the timeline like after the 90 day Deficiency Waiver is sent and I respond? I will send the cost analysis showing the gains and losses, but I don't want to have any final rulings on my case beforehand. Also, would I need to appeal something like this at a later date? Thanks again! :-)

  6. #6
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    1,777

    Default Re: IRS Suspects Underreported Income After Failure to File a 1099-R

    Well, a 90 day letter is only sent after a 30 day letter has been ignored. Please see the following link for detailed information on how your situation is handled. This is from the Internal Revenue Manual, which governs how revenue agents proceed in various situations.

    http://www.irs.gov/irm/part8/irm_08-002-002.html

    The problem you have is that a determination was made based on the auditor's report and you were given 30 days to respond. Now you have 90 days to appeal and once that expires your only recourse is to petition the tax court. That's why I suggested you hurry, and at this point I would recommend you hire an enrolled agent, CPA, or tax attorney to represent you in this matter. I would do that today. Handling this yourself is not working well for you.

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