stocks, did they have to be sold?

Question

ok, so january 15th, 2005 i turned 18. my grandfather had died a few years back but had left me some money when i turned 18. thats all i knew, up till now. my grandfather had a friend named elaine that was supposed to manage/maintain and give to me the money when i turned 18. so a few weeks after my birthday i recieved a note from her along with a $10,000 check. the note said happy birthday here is the money ur grandfather left you. so i gratefully deposited it and thought nothing more of it.

now in 2006 when i filed my 2005 taxes, i didnt claim the 10,000, because, well i didnt think i needed too, i though i just claimed what i earned and hr & block didnt ask me about it. i simply didnt think anything about it.

now a few weeks ago i recieved a letter form the IRS saying i owed $1,600 because my filed taxes didnt match what was reported. it reported that i had $10,000 in stock cashed. iv never had stock and didnt click that it might be the same 10,000 my grandfather left me.

Answer 1

This is really a questionable situation since you haven't stated whether or not the stocks were officially in your name and when the stocks were sold (before you were 18?). If they weren't in your name and it was a "gift" then your grandfather should have paid tax on the capital gain from selling the stocks but you should have received the money free and clear and paid no tax on it (they can't tax it twice). If you can prove that he already paid tax on it then you don't have to pay what the IRS is asking. However, capital gains are always paid when you sell stock and if he didn't pay, you will have to since you collected it.

And to answer your first question: NO, the stock did not have to be sold. If it was in your name and you turned 18 after the sale of the stock but did not give permission to the manager of the stocks to sell you have a legal case against that person. That stock was yours and that means that an intermediary acting on your behalf needs your written approval to make decisions for you (all stock brokers do this for their clients). Technically, if this is the case, you could take her to small claims court to get back the $1,600 you will have to pay the IRS because of her actions.

Answer 2

I hope this helps, I found it in a yahoo search for "Inheritance taxable":



In most cases, an inheritance is not subject to income taxes. This includes the value of accounts, stocks, bonds and property received because of death of the owner, as well as proceeds of life insurance policies. There are several exceptions:

Income earned by assets of the estate AFTER the date of death are generally taxed to the estate, or, if distributed, to the beneficiary. This would include interest on bank deposits, dividends on stock, rent collected from rental properties, etc.
If you inherit a pension or Individual Retirement Account from the deceased, the payments are generally taxable to you when withdrawn in the same manner in which they would have been taxed to the deceased if withdrawn during his lifetime. Unless you are the deceased's spouse, you cannot rollover these funds to an IRA in your own name. However, you may have some options as to how quickly to withdraw the money, and this should be discussed with a tax professional or attorney familiar with the estate.
Deferred Annuities including Variable Annuities are also taxed in the same manner as they would have been taxed to the owner during their lifetime. Good records can help reduce taxes because you will know the cost basis of the original owner
If you sell property that you inherit, you may have a gain or loss to recognize. For more details see the report "I Sold Something I Inherited".

I do recommend that you seek the advice of a well established tax consultant and not one of those rookies at H&R...

Answer 3

NO they didn't have to be sold... if they weren't you would owe when they were sold. but since they were then if you were the designated owner then you owe for the gain on the stock.

Answer 4

go to ur irs office and explain to them what happen..they usually will lower ur fine,or have u claim it on this years filing..but go there,not over the phone...

Answer 5

if the stock was in your grandpa's name with you as the beneficiary, the stock would have to be sold by the estate.