<p>I do our own tax using TurboTax. Should I contact a professional to represent us? I think the issue is simple. We had a huge loss while paying a substantial amount to an investment firm. Or maybe there’s more to it?</p>
<p>Do they want to <em>see</em> you or talk to you? Most inquiries are settled over the phone.</p>
<p>It shouldn’t be a problem unless you took an aggressive position on the loss. In that case, you might need to contact a tax professional. My husband is a tax accountant and he often ends up with new clients who thought they knew what they were doing until the IRS came in questioning the return and then it turns out they really didn’t understand the tax law. Unfortunately, once the IRS flags your return, they often want documentation for the entire return, so hopefully you have good records. If you are talking about a lot of money (not sure when you say ‘huge’ what you mean), it might be worth it to seek advice from a tax professional (tax accountant or tax attorney).</p>
<p>Worse case scenario is usually they deny the loss and you end up paying more taxes and maybe interest and penalties.</p>
<p>They want to see one or both of us in person. I would prefer a phone conversation. Less intimitating No such luck. </p>
<p>Our investment firm gave us a number for the loss that I used. TurboTax calculates carryovers if it applies. Is that being aggressive? They want the capital gains/loss record and itemized deductions. The biggest deduction is the management fee.</p>
<p>Doesn’t sound like it. Just meet with them and see what they have to say. Certain things can trigger an audit but that doesn’t mean you did anything wrong. It’s probably something really straightforward. If it’s not or you don’t agree with them, then hire a professional.</p>
<p>I wouldn’t go to the IRS before I at least talked to a tax professional about this.</p>
<p>It could be this investment firm is the target and your return got pulled for audit because of it-or your return got flagged simply because the loss is outside of the normal range-but once you go in they can look at everything on the return and they can also go back to prior years.</p>
<p>Get someone who knows these matters to look at that return-it will be money well spent.</p>
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<p>Very true.</p>
<p>Iglooo - I second what peopel are saying about having a professional look over your taxes before meeting with the IRS. Best of luck - I’m sorry you have to go through this intimidating process!</p>
<p>All of the audits that I’ve had in the last 15 years were of the type where they either sent me a check or a bill (through the mail). I cashed the checks and paid the bills - no big deal. In general, I was so sick of doing taxes by the time these things came in that I didn’t care to argue anything - time and stress is worth more than money.</p>
<p>We have a pretty low tax profile though, in all areas except for investments.</p>
<p>read over carefully the letter that they sent. It should clearly state which records/documents that they want to see. Take ONLY those docs and records with you and NO more. </p>
<p>Yes, they will probably ask about other stuff once you are in the chair, but the stick to the letter, as in ‘I’m sorry, I only brought with me what was requested in your letter of xxx date’.</p>
<p>If your records are in order and you did not take an aggressive position on an item, it should be no big deal.</p>
<p>They want to see short-term capitals gains statement and itemized deduction subject to 2% AGI. Since they come from the firm, it’s well documented. We don’t take an aggressive position in general. Too much hassle. </p>
<p>I went on the IRS website. Before requesting a meeting in person, they go through multiple reviews of the returns in question. That worries me. I put numbers into TurboTax and do rough estimate of taxes but not go through thier calculation. It is possible somehow numbers got scrambled in their convlouted maze. I’ve been doing this for almost 30 years without any incident.</p>
<p>If you didn’t do anything wrong, then you have nothing to worry about. If you did something wrong, but didn’t intend to, you have nothing to worry about. You will just pay the taxes owed and the late penalty.</p>
<p>My H has met with the IRS numerous times over our 25 yrs of marriage. They come to him at his office. He does have an accountant. They gather all the information the IRS needs and have it available when the IRS person comes. He has never had to pay any additional taxes or fines after an audit. The last audit was recently for one of his business returns. H said the IRS agent looked about 20.
Even though he has never had an additional liability it does stress H out.
Good luck.</p>
<p>You might contact this investment firm and ask the if their client’s are being audited. 15+ years ago a friend ran into some tax issues, I did not know the details but he complained a lot and it was nothing he did per se, the IRS targeted his accountant and was auditing every single client regarding the way something was handled. </p>
<p>Maybe the firm to which you refer already knows about this?</p>
<p>The firm is a big bank. Our assets are miniscule to them. If they are being investigated, I don’t think they would bother with us.</p>
<p>I checked my numbers again. I think we should be OK. But they scheduled 4 hours for this and told me to bring returns from the last 3 years. I don’t know if I can keep cool so long.</p>
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<p>Yeah, but you’re Iglooo!</p>
<p>If they wanted to see my stuff, I think that I’d just invite them over to my place. One look at my place or a look at my car and they’d probably leave. Anyone cheating on their taxes should be doing a lot better!</p>
<p>Actually, I’d be delighted to be audited. My plan is to just hand everything over that they ask for, and have the agent go through all of the returns with me line by line so that I know what I’m supposed to be recording and where. This is your chance to ask all of your own questions about how the paperwork should be handled. Don’t feel scared, feel happy! The worst that can happen is that you have to pay a bit more. But there also is the chance that you might get some money back. And, at the very least, you will know exactly how they want you to things in the future.</p>
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<p>How would they know? I don’t think that each agent is familiar with the 20K pages of tax code much less one that’s 20 years old.</p>
<p>I’ve represented clients with the IRS for 25 years. If a client insists on going themselves, my general advice is to answer, directly, the questions they ask. Do not volunteer other information. Do not ask extra questions. 3 years of tax returns are “open” (can be reviewed). In some circumstances, they can review 6 years. </p>
<p>Have your records ready, in order of their request on their letter. It sounds as if you have the capital loss statement from your broker and a statement of their fees. Those should be straightfoward documentation. You will probably also have to prove your cost basis in the stock/funds. I am surprised these types of info weren’t requested via mail. However, I have seen an increase in office audit activity in the last 18 months.</p>
<p>Good luck!</p>
<p>One thing that I’ve noticed in the last year for my brokerage accounts is that two of my brokerage companies provided profit and loss, cost and wash-sale information. Ameritrade did this for the 2009 and 2010 filing years and Fidelity did it for 2010. The Ameritrade presentation was very nice showing profit and loss, cost with and without wash-sale computations. Fidelity’s presentation wasn’t as useful as it loaded the wash-sale information inline and the wash-sale often wasn’t relevant for the security as there was no activity in the last month - that is it marked wash-sales for intermediate transactions so if you closed out the position well before the end of the year and didn’t buy it in the next year, it still marked intermediate transactions as wash-sale and you had to back those out.</p>
<p>Perhaps the automated reporting by brokerages of profit/loss/costs/wash sales has the IRS checking how well some of this is done. I did find what I considered mistakes in one of my reports and I couldn’t reconcile the mistake amount but it was small enough that I didn’t care. Add to that that there is usually one or two rounds of statement corrections (I’ve had up to three in the past) and it seems that errors are possible in this process.</p>