Expert: Paul Henneman - 3/15/2006

Question
I am just getting my "feet wet" with investing by investing a few hundred bucks in penny stocks to educate myself as to how the market works.

I bought a stock at $0.15 and sold it at $0.20 making a net profit of $28.93, however my account says that I owe $36.44 for the transaction for "TEFRA WITHHOLDING".

WHAT IS TEFRA WITHHOLDING and why is it more than the total profit on the sale?

Answer
Travis,
   Thank you for your question! Unfortunately I am not a tax expert by any means. However, perhaps I can at least point you in the right direction. I looked up TEFRA on google and found the following explanation:

"The Tax Equity and Fiscal Responsibility Act of 1982 states that effective January 1, 1984, all U.S. citizens and resident aliens must provide payers of interest, dividends and other distributions with their correct Taxpayer Identification Number or the account will be subject to backup withholding."

  I think the next question is where you conducted the trade. Was it through an online brokerage account? If so, they may not have your tax payer identification number, usually your social security number. This means that they are withholding sums against future taxes. I would contact the organization that made the trade for you to ask about this, I believe that assuming you have a social security number you can supply it and have the withholding requirement removed. (they could also simply have an incorrect number). I am not sure, but the amount they deducted was probably based on the total amount in your account, not on the profit of the trade.

I hope that this at lease gets you started. Please do not hesitate to follow up with me if I can be of any further assistance, and please keep in mind that I am not an expert in this and take my advice accordingly,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEReports.com
www.VEInstitutional.com