I haven't filed taxes for 2005. The IRS says I owe tens of thousands in pentalties and interest. What do I do?

Question

In 2005 I did a lot of online stock trading and never filed my taxes for that year. It was a small account but because I traded it so much it appeared that there were tens of thousands in gains. When losses are factored in, however, the small 10,000 account actually lost money overall, so there are no gains to be taxed. The problem is interest and penalties have accrued on the assumed taxes owed. My question is, Will the pentalties and interest be removed once the taxes are filed and the losses written off from the gains? I never had more than 10,000 in the account and eventually lost most of it. The government cant expect me to pay 10,000+ in interest and penalties, can they?

Answer 1

When you failed to file a return you forced the IRS to act on the information that they have. In the case of stock sales they only have the gross sale price. They typically assume that the basis was zero and perpose a tax amount based on the sale price. When you do file a return you can provide the true basis which is likely to result in no tax and therefore no penalty.

Answer 2

The IRS filed what is called a Substitute for Return or SFR. They first issued a Notice of Deficiency which gave you 90 days to file a return or file a Tax Court petition. After you failed to do either, the proposed assessment became final.

The proper method is to prepare a return, which now MUST be filed as an ORIGINAL RETURN TO REPLACE AN SFR. That should be written in RED at the top of the return and MUST be filed with the Audit Reconsideration unit at the Brookhaven IRS campus.

If you do not file the return with Audit Recon, it may NEVER get processed. Remember that you have a valid return on the system now and any subsequent filing that comes in has to be processed in a very particular manner.

Do NOT submit backup documentation with the return, but DO submit the complete Schedule D. IRS MAY choose to examine the return closely as you are asking them to reopen a closed audit. If that occurs, you must supply the backup documents to show the cost basis for the purchases.

If you did not have any gains and if you have no taxable income, the penalties and interest will be removed as well. Bottom line is that the penalties and interest go along with the tax.

Answer 3

The IRS gets info on the sales, but not on your basis in the stocks you sold, so their estimate is just on the total sales since they don't know your actual gain or loss.

Get your info from your broker, and fill out a return for 2005 including a schedule D for ALL of the sales from that year, showing the actual cost, sales price and gain or loss for each trade. Then send this in to the IRS. The letter you received has info on it telling who to send it to and what to do if you disagree with their assessment.

If you fail to file a return, this will happen every time. And while getting a letter like that can be a heart-stopper, no they won't charge you penalties and interest if you really had a loss. Those were calculated on the only info they had - just the sales, which all showed as gains. As long as you follow all the requirements, of the letter you got from them, you'll be OK.

Answer 4

You have learned an object lesson in tax filing requirements. The IRS only gets the data on the sales, not the purchases. Therefore they base the cost at $0 and assess the appropriate taxes since you broke the law by not filing.

File your return and attach Schedule D with all of the transactions listed. If you have a net loss on all of the trades you can use up to $3,000 of the losses to offset other income and carry the rest forward to future years. The IRS will refigure your tax liability based upon the return you file. Don't be surprised if you get audited on that but if your numbers are correct you won't have much to worry about with that.

Answer 5

The mechanism once you efile is: a million) You post the return to TaxAct along with your digital mail address. 2) TaxAct submits the return to the IRS. they additionally post your past 12 months AGI, PIN, and DOB (the two yours and your husband's) to instruct id. 3) The IRS sends an settle for/reject code to TaxAct. 4) TaxAct sends you an digital mail asserting it replaced into regular or not by means of the IRS. The IRS can provide help to realize in the event that they have been given a return at step 2. The IRS can provide help to realize if it replaced into rejected and why. To the IRS a rejected return is comparable to in case you on no account filed. Yeah, in case you by some ability had info that the IRS regular the return (the digital mail), the IRS could hamper the effects, yet I doubt you will locate the digital mail as TaxAct has its act at the same time. in case you on no account filed and the IRS filed 2010 for you, it particularly is talked approximately as a "substitute For return" and is the worst possible tax return as that's frequently filed MFS, no itemizing, no childrens, no credit, etal. to repair an SFR is painful as you ought to post the unique return to an audit team and anticipate it to get processed. even though, that's somewhat quickly for a 2010 SFR....

Answer 6

The IRS created a return for you using the amounts reported to them on form 1098B. What you need to do is fill out a sch D showing your basis in each transaction, and the date of purchase and sale. Show in black and white where you generated a loss. Then fill out a 1040X form. You can carry unused loss forward in each tax year until it is all used up.

Answer 7

You asked a related question earlier, I won't repeat my answer to that.

You will not be taxed penalties and interest on taxes you will not owe. If you do not owe any tax, you will not even be assessed any penalty for not filing.