Expert: Richard Stolp - 6/22/2011

Question
Hi Expert,

I got a tax audit for my 2009 tax return. In 2009 I had bought taxes worth 14 thousand and sold for 13 thousand. Since I had loss I did not include it in my tax return.

The audit treats 13 thousand, the amount i sold my stocks, as pure profit.

I have documents from scottrade (company where I bought and sold stocks) for 2009.  

Q1) Could you please tell me what  process/form do I need to fill to make IRS aware that infact I had a loss?

Q2) Do I need to pay taxes even if I had a loss.

Note: I have not bought or sold stock since 2009.

Thanks in advance for your help.

Answer
The IRS has no idea if you made money or not on stock transactions - the brokerage sends the IRS notice that a stock/bond was sold and if you don't do the return the IRS assumes it was all profit. So, you need to keep the IRS informed about your stock transactions whether you made money or not, just so they don't come to the wrong conclusion.

The best way to tell the IRS is to do the 2009 tax return and be sure to fill out the proper form that reviews your stock transaction. You might also include copies (never send originals) from your brokerage that back up your return.

You should get your return in as soon as possible. Left to its own the IRS may do the missing return for you - at the highest rate - and generate a balance due. Once your account has a balance due they will begin the collections process. That is not a process you want to have started.