2006 tax Problem

February 27, 2008 9:30 AM

The IRS says I owe $7000 from 2006, it's a mistake... I opened a PNC Investment account with $20k it made 7.5% over 1 year, and the IRS says I need to pay taxes on the $20k I already paid taxes on, money I earned on the job...

Summary:
$20k invested $1500 return... I paid taxes on the $1500 for 2006, now the IRS wants me to pay on the money I took out... does that make sense? Obviously I'm going to have to get a better accountant than the local H&R Block person this time around.

posted by anonymous to Work & Money (9 answers total)

Since you have already paid for H&R block, and it seems like a pretty easy problem (ie, nothing complex) I would go back to them, explain the problem, and suggest they fix it free of charge (after all, its their muck up).

If they want to charge you, find a real CPA this time.

But yes; it seems as though you should just be paying on the 1700. Do you have a copy of your return? Was the investment reported on your 1040 as income? Just the 1700 should have been recorded as income?
posted by SirStan at 9:35 AM on February 27, 2008

Doesn't H&R block guarantee their work?

From their website:

Our associate training and system of safeguards are carefully designed to ensure the accuracy of your return. Mistakes are rare at H&R Block. However, if we do make an error in the preparation of your tax return that costs you any interest or penalty on additional taxes due, we will reimburse you for the interest and penalty.

So I would call H&R block first, and see what they say.
posted by delmoi at 9:37 AM on February 27, 2008

Congratulations on making a profit! The transaction confirms and statements sent to you by PNC will prove to the IRS that the $20k is your cost basis. The investment firm is required to give the dollar amount of the securities sold to the IRS, it's up to you to show the cost basis and figure the capital gains. The IRS does this all the time. This is a common occurrence that people fix all of the time. If you no longer have the transaction confirms and statements sent to you by PNC, they should be able to supply you with copies, perhaps for a small fee. Don't panic too much, it will probably be fine. I am not an account or tax advisor.
posted by Daddy-O at 9:41 AM on February 27, 2008

"the IRS wants me to pay on the money I took out"

Did you take the money out of an IRA or 401k?
posted by Hermes32 at 9:42 AM on February 27, 2008

Seconding Daddy-O. A similar thing happened to a friend of mine, and she just needed to call the IRS, and they fixed it within a couple of minutes.
posted by bryanjbusch at 9:54 AM on February 27, 2008

When you filed your 2006 taxes you should have gotten a 1099 from PNC when you sold your investment. You then should have filled out a Schedule D to report the cost basis and net profit. If you don't do the Schedule D, the IRS automatically assumes that all of the proceeds were profit.

You may be able to fix this with a phone call, but more likely you need to amend your 2006 return with a 1040-X. It isn't particularly difficult.
posted by JackFlash at 10:40 AM on February 27, 2008

IAAL. When you have a slam-dunk defense, the IRS is *very* good at correcting their mistakes. Just call the number on the notice they sent and you'll have it straightened out quickly.
posted by KRS at 12:10 PM on February 27, 2008

the IRS is *very* good at correcting their mistakes

Yes, but in this case it seems that it was the OP that made the mistake by not filing a Schedule D. Filing an amended return should fix that easily.
posted by JackFlash at 12:24 PM on February 27, 2008

don't panic--something similar happened to me. just send them the documentation that you paid taxes on x and y and whatever. i also forgot to file a schedule d. just send one with all the other documentation and you'll be fine. really. the irs can be scary, but not always.
posted by thinkingwoman at 3:15 PM on February 27, 2008