Tax files error found by IRS. What to do?

Question

This is because I did not report my stock trades for year 2005.
Now IRS sent me an error report saying that I did not report my sale of stocks.

I bought few stocks in Dec 2005 but sold them in the beginning of 2006.

Which trades should I include in my return for 2005?

Should I include the sale of stocks in 2006 which I bought in 2005?
If not how do I report those stocks?

Please help!!!

Answer 1

you show the sale of stock on schedule D in the year they are sold

if you sold stocks in 2005, you'd show that/those sales on your 2005 tax return

is you sold stock in 2006, you'd show those stock sales on your 2006 tax return

Answer 2

Only SALES in 2005 should be reported on your 2005 return - a stock you bought in 2005 but sold in 2006 would have been reported on your 2006 return.

It sounds like the IRS received a copy of a 1099 showing sales for 2005. You would have gotten a copy. On the letter you received from the IRS about this, they should have shown fairly specific information about the trades they're referring to. If they're correct and you just forgot about them, then you need to pay the additional tax - the IRS letter would just show taxes on the entire amount of the sale, not taking off for the purchase price since they wouldn't know what that was - so you wouldn't likely owe nearly as much as the letter says. Refigure your taxes correctly, and respond to their letter with the corrected information and a check for the additional tax, if any.

If you believe the information they show is wrong as to what was sold when, search your records to find the dates of the actual trades and send them copies of the confirmations.

And if you didn't make those trades at all, then it sounds like your social security number was used by someone else, either accidentally or deliberately. If that's the case, call the number on the letter you got and talk to the IRS about this.

Good luck.

Answer 3

Here's the deal= It appears from what you've written that the IRS has stock sales for 2005 reported to them on form 1099B. Some of what you are referring to as "trades" are probably "sales" and that is what the IRS is interested in. However, you probably don't owe them as much as they are saying you do. The IRS will go off the 1099B only and they have no way of knowing what your basis (what you originally paid) in that stock is. That's why we prepare Schedule D's. To show the IRS the difference. Sometimes it's a gain and sometime's it's a loss. Depending on if the stock was sold for more or less than what you bought it for.
Ask the IRS for a copy of tax account for 2005 or go off the letter you received. This will show all the stock sales reported to them. Find out what you paid for the stock that sold and when you bought. Once you have that info. you will be ready to prepare a 1040x or amended tax return for 2005. My advice is to then seek a tax professional and have them prepare the 1040x.
Good luck!

Answer 4

Were any of the trades that you made in 2005 short sales that you covered in 2006? Because a short sale involves selling a stock (that you don't own) you need to alert the IRS that it is a short sale. Here is information from www.irs.gov:

Q: Should I advise the IRS why amounts reported on Form 1099-B do not agree with my Schedule D for proceeds from short sales of stock not closed by the end of year?

A: If you are able to defer the reporting of gain or loss until the year the short sale closes, you will need to attach a statement to your Form 1040, Schedule D (PDF) explaining the details of your short sale and that it has not closed as of the end of the year. This will allow you to reconcile your Form 1099-B (PDF) to your Form 1040, Schedule D (PDF) and still not recognize the gain or loss from the short sale. Include your name as it appears on the return and your social security number.

For more on these rules and the rules for put options and wash sales refer to Chapter 4 of Publication 550, Investment Income and Expenses.

Answer 5

The easiest way to address this might be to have the IRS send you your tax transript or a record of the stocks that they have on record as being sold in this particular tax year. You can do this with a Form 4506-T (which is available on the IRS website) and it is free. The other option is to call the 800 number and manually request your transcripts. It takes about a week for the transcripts to arrive if you call. Then you can just plug in the numbers....


Kreig Mitchell
http://www.irstaxtrouble.com
http://www.irstaxtrouble.com/category/tax-blog/

Answer 6

You only have to report the sale of the stocks that you bought then sold. You only report after selling them, but it also depends on if you sold them at a profit or loss. Search www.irs.gov or ask a tax accountant. I used to depend on my tax person for all of these answers. I know it makes a difference as to what you bought and sold them for.