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Thanks for all of that, but you missed my most important question - please answer:
Can someone fix a 2005 tax return that accidentally double reported stock gains and have the IRS adjust the supposed amount of back taxes owed - since they are not really owed - they were just double reported by accident. The taxpayer hired a firm to take care of this and only recently discovered that they failed to correct this issue.
(I'm getting different answers from different representatives on JustAnswer about this question)
You're asking the wrong question (if the facts are as you reported them).
Sorry to put it that way, but what has to happen now is in the answer above ...
showing proof to the IRS that the gains were doubly reported.
Preparing a 1040 from 2005 will not help now.
The IRS will make the adjustments, one this person goes through the appeal process to show proof that the sales were reported twice.
Now, if the return was never filed, then it would need to be prepared and filed.
Typically the problem with capital gains is that the taxpayer is responsible for reporting the basis, and when the IRS gets the 1099, if the taxpayer did no schedule D the IRS assumes that the sale was all gain.
So, it really seems strange that the IRS didn't already send out the CP 2000 where THEY make the change to match the 1099 that came from the Broker/Dealer. .... which, again, if the taxpayer never filed, or did not report the basis of the stocks, would still leave the tax bill too high.
All that is to say ... if things are as you reported above, then the taxpayer need to take those actions ... preparing another firm is not what the IRS is looking for. They're looking for documentation. The brokerage statement from 2005 would be the place to start.
If the form was never filed, and the IRS is asking for payment on the proceeds of sale as if they were all gain, then preparing the return for 2005 would rectify the problem of never filing, but since the process is this far along, starting the appeals process is probably the best way to "stop the locomotive."
Let me know ...
Ugh, this is all too confusing for me.
All I want to know is CAN the filing (it was filed) be amended or fixed at this point and does the IRS HAVE TO acknowledge it was a mistake (esp. since this person was on psychological disability in 06-09) and then adjust the SUPPOSED taxes owed?
I obviously don't understand any of this. And the person in question is currently not gainfully employed, technically disabled and does not have the money or ability to hire someone to help him or to travel to hearings with the IRS. He is also worried that they will slam him and not give the guy a chance to clear up all his back taxes messes and file his returns that weren't file or filed incorrectly.
Thank you - that's what I was looking for.