r2i forum

Hi,
I filed my 2016 taxes in time - received a notice form IRS saying that I under-stated my income and they levied more tax and fine for under-reporting. But the thing is I didn't under-report the earnings but made a mistake in reporting company granted stock earnings. What are my options now? this is what I am thinking, am I in the correct direction: (1) file an amended return which will show the same earning and tax as I originally reported but with the error I made is corrected (2) request them to null the newly levied tax and fine (they may still assess some fine/interest as it's my mistake which is fine, but the current fine is HUGE). Do I need a tax consultant to represent me, even though I already understood what went wrong - advantage of having/not-having a rep?

What is the issue:
It's about stock earning from RSU granted stocks. I had some stock that was vested in some previous years but sold this year. In reporting that income (Gain = NetProceed - CostBasis), I should have adjusted the cost basis to account for the fact that I already taxed at ordinary income rate for the FMV of stocks in the year they were invested and liable only for the gain. This would have taken care to avoid double taxation and report only the gain. Instead of adjusting CostBasis, I somehow adjusted NetProceed (yeah...not sure why I did it....but in my defence, the brokerage info was confusing/unclear and I made the mistake even though I am doing this several times). But the net gain I reported is still correct and the bottom line income is still correct. I am thinking of replying to them explaining the mistake with all evidence (previous years taxes and brokerage reports etc) along with amended tax forms - the only thing that will be amended is capital gains reporting form. Does this work? do they take off the new-tax+fine+interest, since I didn't misreport the bottom line but made a mistake (first mistake in 20 years of self-filing). Any advice or referrals would be appreciated. thanks.

If there is no tax due, then there should be no additional tax, interest, penalty etc.

Since you said the fine is huge (although it should be at most only a %age of tax due), it might be useful consult a professional. It's mostly paperwork for you, but a professional would be able to handle the process better.

Alternatively, you could write an explanation, and attach an amended 1040-X to it. Do not file a 1040-X the normal way, because it may not get back to whatever IRS group sent you the letter.

greyfri;672061If there is no tax due, then there should be no additional tax, interest, penalty etc.

Since you said the fine is huge (although it should be at most only a %age of tax due), it might be useful consult a professional. It's mostly paperwork for you, but a professional would be able to handle the process better.

Alternatively, you could write an explanation, and attach an amended 1040-X to it. Do not file a 1040-X the normal way, because it may not get back to whatever IRS group sent you the letter.

Thanks.

They assessed it at 20% of additional tax levied - substantial for us (anything is substantial given we already paid the actual tax due) plus interest. It just so happened that the way they calculated the gain put us over a threshold and had high-tax+AMT (five digit amount). The letter says that we don't 'have to' send them amended 1040-x - but am thinking of adding anyway (yes have to send it in a different way, will send back in the addressed envelope/form they have in the package). About taking tax professional help, it's more about getting a good tax professional who can spare time during this busy time but I am still trying.

If there is no additional tax due, you can talk to them and file amended return. Call them. They are reasonable.

Yes, call the IRS and explain the mistake -- they should be able to suggest the best course of action. Also, please report what you did back here so that it will be helpful to others.

In my case, I recently received a notice from IRS that they have a credit on file for me for 2016 tax return (paper-filed). I called them and it looks that they did not receive the tax return, but from bank records they were actually able to deposit the check that I sent with the return. After explaining them, they just advised to resend the 2016 return. It seemed that the representative genuinely wanted to help.