Find solution
What is Stock Audit?

IRS Audit -- "Zero Base Stock Sale"?

  • Title says it all They claim I owe $1100 in taxes from last year. This is because I sold 7K in stock and never reported it. The letter says "We used a zero cost basis because we were not able to determine the cost or the adjusted basis of the stock sold" However, I had purchased this stock in 2008 and 2009, and when all is said and done I only profited around 1K. What is the best way to fix this? I have never reported any of my stock purchaes/sales on my 2008, 2009, & 2010 either. I was naive. I'd like to fix everything and pay the IRS the $100 or so I owe them in taxes from these sales. Below is a breakdown of my gains per year 2008: +$331.94 2009: +$1,662.55 2010: - $628.20 So it total, over 3 years I had a gain of $1366.29 What should I do?

  • Answer:

    Each separate tax year will have to filled out and mailed for this purpose and you will need to get the prior year tax forms that you will need for this purpose 1040 along with the schedule D for each print a copy for your self and sign a copy to be mailed to the correct IRS for each year separately and on the left side of the envelope write 1040X Amended return and the tax year that it is for in that envelope. Use the search box at the www.irs.gov website for Tax Products, including forms, instructions, and publications for previous tax years. http://www.irs.gov/app/picklist/list/priorFormPublication.html Type 1040 in the box http://www.irs.gov/app/picklist/list/priorFormPublication.html?value=1040&criteria=formNumber Use the search box at the www.irs.gov website for Topic 308 Amended Returns http://www.irs.gov/taxtopics/tc308.html Attach any forms or schedules that are affected by the change. Attach copies of any forms or schedules that are being changed as a result of the amendment, including any Form(s) W-2 received after the original return was filed. Your state tax liability may be affected by a change made on your federal return. For information on how to correct your state tax return, contact your state tax agency. Instructions for Form 1040X http://www.irs.gov/instructions/i1040x/index.html http://www.irs.gov/instructions/i1040x/ch02.html#d0e2204 Assembling Your Return Assemble any schedules and forms behind Form 1040X in order of the “Attachment Sequence No.” shown in the upper right corner of the schedule or form. If you have supporting statements, arrange them in the same order as the schedules or forms they support and attach them last. Do not attach correspondence or other items unless required to do so. Attach to the front of Form 1040X: * A copy of any Forms W-2, W-2c (a corrected Form W-2), and 2439 that support changes made on this return; and * A copy of any Form W-2G and 1099-R that support changes made on this return, but only if tax was withheld. If you owe tax, enclose (do not attach) your check or money order in the envelope with your amended return. See the instructions for line 19 beginning on page 9. Make sure you have the correct mailing address from the information for Where To File and THEN mail Form 1040X and attachments to. Enter the correct mailing address to the Internal Revenue Service on the envelope with the correct amount of postage attached on the envelope that will be needed for this purpose before you put it in the mail. http://www.irs.gov/instructions/i1040x/ch01.html#d0e484 If none of the situations listed above apply to you, mail your return to the Internal Revenue Service Center shown on page 5 that applies to you. THEN mail Form 1040X and attachments to: Hope that you find the above enclosed information useful for your situation and good luck to you with this matter. 12/18/2011

Bobbie at Yahoo! Answers Visit the source

Was this solution helpful to you?

Other answers

File amended returns correctly reporting your stock transactions on Schedule D and pay the additional tax due. The IRS will then bill you for penalties and interest.

card-ron

You do not report purchases. The IRS does not know how much you paid for them. You need to file amended returns with schedule D and tell them. Then the amount you owe will be adjusted.

Cathi K

File amended returns. Or pay the IRS bill. But call them. Don't ignore the notice, whatever you do.

TheBansheeofBebop

until you report the sale on Sch D where you show the purchase price and date of purchase, IRS only knows that the stock was a zero basis, they have no idea what you paid for it it might be well for you to file your Sch D sales for 2008, 2009 and 2010, it is entirely possible it will be much to your advantage to do so until you complete your Sch D you really don't know what your gains or losses are

tro

Have you filed your tax return for 2008, 2009, and 2010? If yes, you have to file a 1040X for each year including your schedule D, reporting all those transactions. Remember to attached a copy of your 1099-B. You could not combine all three years to one gain or loss. If you have not file all those years' return, you have to file your 1040 for each year including schedule D, 1099-B

htm182111

Since you obviously don't know what you're doing, you should hire an "Enrolled Agent" to help you properly amend your tax return in 2008 and each one thereafter.

Yirmiyahu

You failed to fill out a Sch D and report your stock transactions. Find a licensed & registered tax preparer to set you up with amended 1040X tax returns for the three years in question. It will be much cheaper than paying the IRS; and, FYI--long term capital gain rate in all three years in the 15% bracket is "zero-zilch-nada-squat-zip-nothing". You would owe the IRS nothing. Never try to do your own tax return as you are dealing with the holiest of holies-money; remember that knowledge is power (not to mention money in your pocket).

acmeraven

The letter you received from the IRS should tell you what your next steps are. You'll probably need to write them back stating that you disagree with their statement because your basis in the stock is not zero. You'll have to provide proof of the stock purchase with the purchase amount & date shown on the document. Look at the schedule D form for the year they are questioning. This should help you identify the items you need to include in your letter (stock description, etc) If there are other years that you you did not report stock sales, you may need to amend those years, especially if you are going to owe money.

Norman

Related Q & A:

Just Added Q & A:

Find solution

For every problem there is a solution! Proved by Solucija.

  • Got an issue and looking for advice?

  • Ask Solucija to search every corner of the Web for help.

  • Get workable solutions and helpful tips in a moment.

Just ask Solucija about an issue you face and immediately get a list of ready solutions, answers and tips from other Internet users. We always provide the most suitable and complete answer to your question at the top, along with a few good alternatives below.