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YES, THE IRS DOES DO SOMETHING WITH 1099-B INFORMATION

February 23, 2006

A small taxpayer's lament:

My schedule C business has a loss. I sold stock to finance it, but all the sales are at a loss. I have no taxable income. Why should I waste my time and money filing a tax return?

Russ Fox points out an excellent reason to file at his Taxable Talk blog. If you don't file, the IRS will assess taxes assuming that the gross sales price of the stocks reported on your stockbroker's 1099-B forms for you is all gain. Once the IRS computers get this idea in their chips, it's very difficult to get thing straightened out.

Russ discusses Sherer, a Tax Court case. The taxpayer had to go through a Tax Court trial to prove that his cost basis in the stock he sold in 1999 exceeded his sale price.

I had a similar case recently, where a taxpayer came in to get an old return done after receiving a notice proposing tax based on the gross sales price of the stock. We prepared a corrected return and received back a "90-day letter" telling us that we had to either pay up based on the original notice of go to Tax Court. Fortunately for our taxpayer, once the Tax Court petition was filed an actual person from the IRS appeals office was put on the case and things were quickly resolved in the taxpayer's favor.

Russ has wise words for taxpayers in this situation:

There's a caution here, though. It's much, much easier to file your taxes on time and not go through the hassles that this taxpayer went through. It's cheaper, too.

All's well that ends well, but it ends better if it ends cheaper.

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