IRS tax return-2006
Q.I just received a notice from the IRS that our 2006 form is incorrect for two reasons. 1) I received 6500 from a tax sale of stock from Smith Barney, yet the 1099 did not catch up with me because we moved in Dec of 2006. (Stock Sale was July 2006, moved in Sept, then moved again in Dec). My mistake- I forgot I sold this stock when filing the following March. 2) Wife had some stock from former employer in HS. My wife was 31 in 2005, this was a stock purchase from ToysRUs where she worked when in HS/early college 14 years earlier. Apparently she had enough stock for dividends valued at $31. Wife had no clue she owned anything from Toys R Us. This was ironically thru Smith Barney as well. Both of use have contacted Smith Barney to process an address change and see what transactions are causing the 1099's. I have also contacted a tax attorney. According to IRS, we owe $1700 in taxes and penalties. The $6500 does not take into account cost basis. The cost basis approaches $5500 on this stock. Gain is around $2000 (some LTCG, some STCG). What forms need to be filled out ? Any recommend
A.You need to file an amended return to report the stock sale & its related basis as well as to report the omitted dividend and don't forget to amend your state tax returns too no idea if turbo tax can do amended returns but they almost certainly can't be efiled You received a CP2000 "underreporter" notice. If you still have your 2006 copy of TurboTax loaded onto your computer, open your 2005 tax return and enter the two unreported stock sales into the capital gains worksheet. TurboTax should recompute your 2005 tax using capital gains tax rates. TurboTax also should automatically fill out a Form 1040X. I recommend you not send the Form 1040X to IRS but you should print out the Schedule D and the Dividends and Long-Term Capital Gains Tax Worksheet. Prepare a short letter acknowleding that you failed to report the two stock sales shown on Forms 1099-B. Indicate in the letter that you have recomputed your 2006 tax with the net gains from the stock sales included and that the applicable amounts are shown on the attached Schedule D and the Dividends and Long-Term Capital Gains Tax Worksheet. Ask IRS to accept your explanation and to assess the tax indicated in your attachments. Keep a copy of everything you send to IRS. Allow 60 - 90 days to hear back from IRS once you've responded. If IRS agrees with you and closes the correspondence audit using your figures, you don't need to do anything except pay the additional tax. If IRS indicates that they intend to proceed with the proposed assessment shown in the CP 2000 letter you received (about $1,700), ask the IRS Taxpayer Advocate to get involved. http://www.irs.gov/advocate
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