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Old 01-03-2013, 05:26 PM
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IRS Letter - Confusion Concerning Gains.

My ex-wife just received a letter from the IRS stating that they were recommending changes to her 2011 return. The issue is a cash pay out from a college savings plan that was invested in a mutual fund. It was completely funded by after tax dollars from her checking account.

When her taxes were prepared last year, we had no 1099-Div from the fund company and since she had always refered to it as a savings account, I didn't think to question it. The IRS recommended changes to her return that would make her liable for taxes on the entire amount...including her deposits.

The account was funded with $50 transfers from checking over 15 years totaling $9K. The amount on the IRS letter is 10.5K. The amount they are charging in taxes is 15.75% of the full 10.5K.

The letter also states that if she doesn't agree with the proposed changes, we can supply the supporting documentaion to get a reversal....I'm thinking the 1099-Div showing the amount of gains that she actually received. They stated they received a 1099-B. Wouldn't this form show the gains vs contributions?

Can somene tell me if we're on the right track here?

Thanks in advance.

Mark


Last edited by Guitarnut : 01-03-2013 at 05:29 PM.


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Old 01-03-2013, 11:39 PM
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“I'm thinking the 1099-Div showing the amount of gains that she actually received?”-----> Form 1099-DIV is the official form for reporting your dividend income to you (and to the IRS). The form is a record of all taxable capital gains and dividends paid to an investor, including those that have been re-invested in a given taxation year. The amounts stated on the form represent the amounts that fund companies are attributing to each investor's investment return for the year and reporting to the IRS.A payer is required to send you this information by February 1 of the current tax year. Sometimes a payer will send you some sort of substitute statement that provides you the same information a 1099-DIV would. Form 1099-DIV helps you report dividends, capital gains distributions, or etc for your taxable investments, whether they're mutual fund shares or brokerage holdings.( But if your dividends or capital gains distributions amounted to less than $10 for the year, you won't receive Form 1099-DIV for those investments.). Even if you don't receive Form 1099-DIV, you're still required to report all investment earnings to the IRS, regardless of the amounts. Your dividends are posted here.In addition, these other account types don't generate Forms 1099-DIV, regardless of the amount of dividends and capital gains paid:IRAs and other tax-deferred retirement accounts. Exempt registrations such as corporations, money purchase pension plans, profit-sharing plans, certain types of trusts, and charities. Even if you don't receive a Form 1099-DIV, your dividends need to be available in the brokerage firm.If you have questions,you can contact yur brokerage firm.

“They stated they received a 1099-B. Wouldn't this form show the gains vs contributions.”-----> Form 1099-B is a tax form produced in triplicate entitled "Proceeds From Broker and Barter Exchange Transactions." One copy is submitted to the IRS, one copy is sent to you and the last copy is kept by the involved brokerage or financial entity. If you perform any transactions involving securities, you'll receive a Form 1099-B in the mail to help you prepare your tax return. They must be sent by brokerages by Feb. 1 of the next year (for example, 2010transactions must be sent by Feb. 1, 2011.You use Form 1099-B to report money received from the sale of stocks, bonds or mutual funds. The actual transactions should also be reported on new Form 8949 and Sch D of your 1040 tax return. The 1099-B is specifically used as a receipt of the transaction for tax purposes.IRS Form 1099-B shows names and contact information for you and your broker while also containing 12 prompts for information regarding the sale of stocks or bonds. You need the date of the sale, the tax withheld, the number of shares and a description of the asset.You should file an amended tax return if you need to correct any piece of information that will alter your tax calculations. You can use an amended return to make corrections to your income, deductions.
I guess you need to contact the IRS for more info in detail


Last edited by Wnhough : 01-04-2013 at 12:01 AM.


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Old 01-04-2013, 11:16 AM
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Quote:
Originally Posted by Wnhough View Post
I guess you need to contact the IRS for more info in detail
Thanks for the explaination. Much appreciated.

After reading thru all 3 pages of the letter, I found info that states if the cost basis for the investment isn't provided, the IRS uses $0. This would explain taxes on the full amount. It also requests the filing of the Sch D and Form 8949 as you pointed out.

So, it looks like what we need to do is get a copy of the 1099, fill out the forms and send them in with our response form. It also states that filing an amended return isn't required, but is an option.

Thanks again,
Mark



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