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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15447
Experience:  15years with H & R Block. Divisional leader, Instructor
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I boght a stockportfolio and held it 5 years. It went nowhere.

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I boght a stockportfolio and held it 5 years. It went nowhere. Then I decided to sell those stocks which did not perform as expected and put all the eggs in one stock. Sad to say, Boston Scientific loss 10% the day after I bought. I held on. Two months later they had recovered half of the value lost. Three months after that they announced a re-call of devices and I lost 11,500 in one day and decided to dump it. I filed a tax return claiming a loss. Now 2 years later the IRS is auditing me saying the sale was additional income.

How is that possible? I earned the money and paid income tax on it as I earned it, invested it, lost money and now they say its considered income? I have always believed you paif tax on gains. How can the IRS claim my principal (at a loss) is additional income now and ask taxes for it?

Robin D :

Hello and thank you for using Just Answer,
The gain or loss on the sale of stock is calculated using the basis (purchase price) and the sale price. If the purchase was $100 (low amounts to keep it simple) and over the course of time the stock goes up and down , the only real amount that will matter is the sale price. If the sale price is $101, there is a gain.
You need to gather your original info on the purchase (any reinvested dividends) and then the actual amount on date of sale. If you sold for lower than the basis that is a loss. The tax advisor that preparered your return should be able to correct all this for you and intercede with the IRS on your behalf.

Robin D :

Please let me know if you need to add info or have additional questions on this subject.


Hi and thank you for that response. One other question. The IRS also has cited a distribution to us from a 529 plan also as additional income. These were funds we invested for our daughters college education. Naturally, as she went through college, we made distribution withdrawals to pay for her tuition and related college expenses. The $3474 the IRS now cites as additional income was in fact used to pay for legitimate tuition and dormitory expenses charged by the college. What do we need to gather in defense of this?

Robin D :

You should have receieved the 1099Q the information on that form will help you calculate if any of the distribution was truly taxable.
Generally, the distribution is not taxable, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses.

Robin D :

You will need to have your receipts for the college expenses. It needed to be reported on the tax return (just like the sale of the stock) but then you also report just the taxable portion. If you do not then the IRS can only go by the info they receive (the distribution).

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