tax advice--updated with what the tax person said

[dadofandrew]

My wife and myself just heard from the IRS today that they feel we owe a sizable amount more than we paid in for 2006. They told us we need to pay it by 4/9/08, or we face additional penalties.

 

So, what's the first step? Tax people are overwhelmed right now, they're not going to want to look at it. I'm assuming the IRS police won't be knocking at our door on 4/10, but seriously, a couple weeks is not nearly enough time to deal with this. I just glanced through it, and their is no where to call and ask for an extension or anything.

[1992casey]

I don't know where to tell you to go, but besides the extension, you should be filing an appeal.

[craigharmann]

You can make monthly payments. That's what I've done the last 2 years.

[TheBwaz]

Those penalties and interest can add up fast. Depending on how they have you classified, you could appeal it but they will still charge you interest and penalties during the appeal. The IRS is not nice.

 

Find a lawyer in your area who handles tax matters. Not all of them do accounting, so they may not be swamped doing returns. If all you are looking for is "where do I go from here" advice, it should only take an hour or 2 of billable time.

 

Do not wait. My father in law ignored the IRS for a spell; he will probably be paying them off the rest of his life because of it.

[dadofandrew]

My wife and i think we now have it figured out...when I cashed in my options upon leaving a company, the proceeds were reported on my last pay stub, and were included on my W2. However, the IRS seems to think the options proceeds are in addition, so they think I owe on the entire option amount yet:

 

For example, using pretend numbers to illustrate:

 

2006 W2, including options proceeds: 50K

 

2006 IRS says we owe on: 50K + 20K options proceeds, which were included on the W2, 70K total I think I should have filed a "schedule" of some sort. Any advice on who to talk to and what to do would be appreciated.

 

EDIT: We do have the money to pay, but it would devastate our "slush fund". If we owe it, we owe it, so we'll pay it. I'm wondering more should I talk to a lawyer first, an accountant, call for an extension, or what?

[TheBwaz]

I'd talk to a lawyer first who can give you the lay of the land, so to speak. It sounds like the IRS needs to have things explained to them, and they aren't always gracious about that.

[Roscoe Chill]

Actually, in my experience, if a mistake is made, and you can clearly identify it, the IRS is surprisingly pretty easy to deal with. About six years ago I received a letter stating I owed an amount that just so happened to be the amount of taxes I had paid for the entire year which was taken from my checks. I sent in photocopies of the amounts and statements etc. and they sent back an apology letter and said the matter was taken care of pretty fast.

 

EDIT: But if you cashed in some kind of 401k or something, you're going to have some penalties that have to be paid.

[Katuluu]

I had a similar thing happen with me when I left American Express 3 years ago. Turns out I did actually owe the money, but since I didn't have enough at the time to cover the whole amount, I simply paid off all the fees/penalties and interest right away, then setup monthly payments to pay off the rest over the next 6 months. It was a relatively painless process.

 

I'd recommend going to a lawyer and an accountant ASAP to find out if you actually do owe the money, and to try and get an extension filed quickly to help give you a bit of breathing room to sort everything out. If you don't owe anything then you'll have time to get everything straight with the IRS, and if you do it will give you some time to save some extra money so your "slushfund" doesn't take as big of a hit. I'd also look into the payment plan as well, just so you don't fully drain your reserves and hopefully maintain a bit of a comfort level for you without paying too much more in interest.

[JJHardy7]

What type of schedule did you fill out for the options? A schedule D?

 

I would probably do some looking into the 2006 return yourself first and see if it lays out right (or contact an accountant). I think identifying where the error (on your part or the IRS') would be the first step.

[dadofandrew]

I did not fil out any schedule, because the options payout was on my W2 as well. That part is a mixup. I may owe a smaller amount because Sharebuilder did not get me my forms until after I had filed...since I figured it was close to a wash, I did not bother.

 

The IRS figured all of it using a zero cost basis, so if I sold $600 of CAT, it says I made $600, which is absurd. It also is counting my option money twice, as far as I can tell. Again, I'm wondering if a tax person will even think of dealing with this right now, as they have a month to do 2 months work.

[Katuluu]

Filing for an extension should be a rather simple process though, and any accountant should be willing to t least do that for you. I'd focus on getting that done first so you don't have to try and rush everything else.

[BMuch]

PM me if you are interested to hear how to fix your issue.

 

BMuch, CPA, CMA

[JJHardy7]

I did not fil out any schedule, because the options payout was on my W2 as well. That part is a mixup. I may owe a smaller amount because Sharebuilder did not get me my forms until after I had filed...since I figured it was close to a wash, I did not bother.

 

Yea this is probably the mixup. Depending on how the payout is you may have complete a schedule D to get basis in the payoff which should lower the taxable income. If you included it in the W2 on your return, you're going to owe less than whatever the IRS is stating.

 

The IRS figured all of it using a zero cost basis, so if I sold $600 of CAT, it says I made $600, which is absurd. It also is counting my option money twice, as far as I can tell. Again, I'm wondering if a tax person will even think of dealing with this right now, as they have a month to do 2 months work.

 

Most firms should be able to fit you in. This is when they make money and people work 55 - 65 hours. Some firms plan on getting most returns either completed by the end of March or on extension by then so they should be able to fit you in. You can PM me also if you want some more specific help.

[olliegjw]

My wife and i think we now have it figured out...when I cashed in my options upon leaving a company, the proceeds were reported on my last pay stub, and were included on my W2. However, the IRS seems to think the options proceeds are in addition...

If that is all it is, the solution should be fairly simple. You'll have to file a Form 1040X (Amended return). Include with that a Schedule D (Capital Gains/Losses) showing the stock options. Your basis in the options is the price you paid, plus any income included on your W-2. This usually comes out close to, but not exactly, breakeven.

[dadofandrew]

Thanks ollie and others, I will let you know if I need something else. From what I understand, I might be able to do the 1040X and the D myself.

[dadofandrew]

So, just thought I would update my tale, since our tax gal is done with it, and we will pick it up this Wed.

 

She is filing a 1040X and a schedule of some sort, and maybe 1-2 other things, indicating when we bought and sold options and stock.

 

All the options money was reported twice, because it was on my W2 and Smith Barney reported it separately.

 

All the Sharebuilder stuff DID pretty much balance out, I actually lost just a bit on all the trades combined.

 

So, thus far, this is what we will be sending in...while the IRS says we owe $11K+ in taxes, and $15K+ in taxes, penalties, and interest; our amended return, filled out by a professional, will claim we are owed $46.

 

Let's hope for the best.

 

By the way, the most eventful things that happened were my 2 calls to the IRS, and the one call I made to Smith Barney because they never sent me a needed form. The first gal at the IRS told me she was going to grant me a one time only one month extension. When it became obvious our SB form would not arrive in time, I called again, to explain I would be late, just to let them know. The woman told to me hang on, and gave me another one month extension, as if they give them out to anyone who asks.

 

My call to SB was a peach. I talked to 5 people, the first 4 of which all told me they had no idea how to help me, because my SS# was not in their system. The 1st and 4th both asked me when I had worked for Citibank, because they worked in the Citibank associate division. Astoundingly, the 5th person found me with ease and sent me the proper form on the first try.

 

My wife says I'm never filling out our taxes again, and I have no problem with that. Thus far, our bill for the tax help is $221.