Who here has tangled with the IRS?

Discussion in 'The Pub' started by Rick Lee, Jul 17, 2014.

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  1. Rick Lee

    Rick Lee Member

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    Got a letter today that our 2012 fed. taxes were just found to be $1281 short due to a $4300 difference between what Merrill Lynch reported to us and what they reported to the IRS about a stock sale. We have the 1098 or whatever it's called, stating the exact dollar amount of the stock sale, which we forwarded on to our CPA. The IRS says what ML reported to them was $4300 more and hence we owe taxes on the difference. WTF? How can this happen?
     
  2. Rothbardian

    Rothbardian Member

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    I have. Did you calculate the sale less your cost basis on the stock? What's the correct amount - what you reported or what Merrill Lynch reported?

    You want the 1099-B.
     
  3. Rick Lee

    Rick Lee Member

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    I can't view what ML reported other than what's on the form they sent us. It's not like they list a bunch of numbers on there. It was company stock options Mrs. Lee had to sell after her employer was acquired. Whatever is in the big pink box at the bottom is the number we report, which I assume is the difference between what she paid and what she sold for.
     
  4. Rothbardian

    Rothbardian Member

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    Do you have the form available?

    I'm going to bed now, but if this thread is still up tomorrow, I'll try to help out.
     
  5. Rick Lee

    Rick Lee Member

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    I will find it late tomorrow. Can't dig it out tonight.
     
  6. SPROING!

    SPROING! Member

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    Just be aware. We are watching.

    Regards,
    IRS
     
  7. aynirar27

    aynirar27 All You Need Is Rock and Roll Gold Supporting Member

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    I wouldn't mess with any part of Money Inc.
    [​IMG]
     
  8. 100JH

    100JH Member

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    Your sold price - Your cost price = profit, which you pay taxes on.

    I have had to dig through multiple records previously to make sure that I get the correct cost basis. Because they were stock options, I am not sure if they had a cost basis or not. Sometimes a company will provide options at a rate of zero cost to the employee (free stock essentially) others will provide options with a cost basis of xx per share.

    For example
    I would get employee stock options from Cisco at $20 a share. It would double and split (and double and split and double and split hahahaha)
    1000 options @ $20 cost basis. Double and split
    2000 options @ $10 cost basis
    Sold at 86 dollars per share
    $172,000 sell price (2000 x $86)
    - $20,000 cost basis (1000 x $20, or 2000 x $10)
    = 152,000 profit > I reported and paid taxes on this

    You have a CPA? This is easy for them, as long as they have the right paperwork. Did the CPA do your taxes or did you? It is simple math really.
     
  9. explorer76

    explorer76 Member

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    I really want to tell you to tell them to go pound massive amounts of sand. Tell them you lost all of your records when your hard drive crashed so....sorry, you can't have my $1281. :)
     
    Last edited: Jul 17, 2014
  10. Scott57

    Scott57 Member

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    Taken on face value, ML would be my first stop. Why did ML report one amount to you and a different amount to the IRS?
     
  11. Rick Lee

    Rick Lee Member

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    Yes, that's where I'm gonna start. I told Mrs. Lee to call them today, as I don't have access to that account. But I just complete a worksheet each year for my CPA, entering the amounts on all the W2s, 1099s and 1098s we get. I surely wouldn't have made up a number and don't recall having to look real hard for the correct figure on the 1099B ML sent us. I understand how the profit is computed; just not how we could have both reported very different amounts. I guess I should be expecting a similar letter from the state too eventually.
     
  12. LeftyASAT

    LeftyASAT Silver Supporting Member

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    I am not exactly sure what you mean in that ML and you each reported different amounts, but that would definitely be a flag for the IRS to question you. My first thought is if your employer did any type of stock purchase benefit - that is, did they offer you a discount buy price on company stock, or did they pay a % of the buy price. That is a pretty common employee benefit, and it is indeed reported as taxable income when you sell the stock. Your employer should have sent you tax documentation on that for the year you sold the stock in, and your CPA should be able to figure that out.

    Most importantly though is don't just pay the IRS without your CPA looking into it and challenging the IRS. Many years ago I had a novice IRS agent insisting I owe $1100, and even told me I had to fly out to THEIR office for an audit! My CPA was an ex IRS agent and actually enjoyed going back after them. He told them they can fly out to his office and sent them 100 pages of documentation - the IRS promptly dropped the audit and admitted an error on their part.

    Unfortunately, I think a lot of people just freak out about any IRS notice and send a check in without even investigating the issue.
     
  13. GarMan

    GarMan Supporting Member

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    Must. Keep. Mouth. Shut!
     
  14. Omega

    Omega Member

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    Why does the CPA need this rather than just enter numbers off of the source document? Seems like an opportunity to have something missing or transposed.
     
  15. Rick Lee

    Rick Lee Member

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    That's what I give him. Actually, I can't recall if I send him the physical reporting docs (or photocopies) or write them on the worksheet. He's in MD and I'm in AZ, so I have to mail him a bunch of stuff and then he files electronically. I'll dig out the 1099B tonight, but he wants me to fax this seven pg. letter and then he'll compare it to what he has.

    A few yrs. ago VA sent me a postcard saying they had redone my taxes and I owed them another $200. For that amount it wasn't worth going over everything again, but for $1281 it is.
     
  16. DucRyder

    DucRyder Member

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    The IRS twats tried to shake me down for $13,000. They lost a piece of my paperwork. I went through and discovered their mistake, informed them and sent another copy. They dropped it immediately. These people are shameful.
     
  17. Omega

    Omega Member

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    If you made an error by writing something down and he didn't have the original to check or did have it and simply didn't check, that's where the problem could have started. Seems like a waste of time to ask a client to fill in a form when the CPA should just take it off the source document for input into their software. Clients may not know what to look for in filling the form but CPAs should. Simply mho.
     
  18. ACfixer

    ACfixer Member

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    I'm not sure I understand your situation completely, but something similar (I think) happened to me a few years back Rick. Scottrade reported my stock sales in 2009 but not my purchases from 2008 which can be a little confusing. They originally wanted tax on the entire sales amount rather than the profit. I don't think you have to "tangle" with the IRS as my bookkeeper cleared it up in about three minutes.

    The IRS is really pretty easy to deal with unless you have something shady going on.
     
  19. pjrhd28

    pjrhd28 Silver Supporting Member

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    1. It's all but impossible that ML reported something different to the IRS that what they gave you. Possible explanations:

    a. Was there more than one 1099? Maybe ML reported two to the IRS but you have only one?

    b. Was the stock option LTCG or ordinary income? Could that have been the difference?

    c. Was there confusion as to what the basis (if any)of the stock was?

    Your CPA should be able to figure it out.

    Might have to amend your state return, too.
     
  20. leofenderbender

    leofenderbender Supporting Member

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    What you received is a CP2000 - a computer cross-matching notice.

    You only need to pay tax on the gain; a broker reports gross proceeds to the IRS. The notice is computing tax on the gross as ordinary income; it may well be a long term gain. You will definitely want to subtract your cost basis to arrive at the gain.

    Generate a letter explaining that they have not subtracted your cost from the gross proceeds; attach schedule D and form 8949 with the updated information and change their findings on the notice. Though it is possible you can handle it yourself, the experience of an accountant will make it go away sooner. Don't forget to amend your state return.
     
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