Receiving an IRS audit about stock sales?

Here's the problem: The IRS does not recognize losses due to Wash sales. If you bought and sold the same stock within 30 days the losss is added to the basis and is not considered an allowable loss. You would be entitled to a loss of $3000 for the year, however, those losses must be netted against your gains. Any additional losses would be carried forward. Not only do you want to correct your original return, but, you also need to keep accurate track of your carry forward. It will help you with your future tax burden. \ I would get some help before sending in the info. If you send in the info, you are at the mercy of the IRS. If you file an amended return, you may be able to prevent them from looking any further. Your local H&R Block should be able to help you if you don't think you can handle it on your own.

You must get help with this. The IRS is not required to figure your tax break. If you send in the information, they may not pursue taxes that they figured you would have owed based on your sales. However, you may be leaving a lot of money on the table. If you have large capital losses, not only will you reduce or eliminate tax owed in 2007, but you will be able to carry the excess losses forward to future years. You need to amend your 2007 tax return now so that you will have accurate information for your 2008 tax return. Take your 2007 tax return, the IRS correspondence, and your transaction records to a preparer.

You shot yourself in the foot on that one. Fill out a Sch D showing all your purchases and sales, then complete a 1040X return to process the loss created. You get to take up to 3K in losses against your 07 income which will mean you get another refund check for 07. The remaining loss you can carry forward and use up to 3K of it on your 08 return; again increasing your refund. The balance of the losses can be carried forward until they are used up.

If your losses exceed your gains, then you should not owe tax on the gains and may be able to claim a refund of the tax paid on up to $3000 of other income. However, you must properly report all the sales, including the basis, the selling price, and the date. If you do not report the basis, the IRS may impose tax on the entire selling price (not just the gain) on all the sales, including those that were at a loss.

You should file your 2007 return because you can carry forward the capital loss to 2008.

You won't owe more, since you'll be reporting a net loss. You might end up with a refund. You need to report ALL stock sales to avoid this situation in the future.