Mr. Me

A little glimpse of me.

Audited?

· by Mr. Me · General

Less than an hour after I passed that dreaded kidney stone, I got taht dreaded envelope in the mailbox. It was marked for official business only. The return address was an IRS service center.

When I opened it, my heart sank. "The income and payment information (e.g., wages, miscellaneous income, interest, income tax withheld, earned income credit, etc.) that we have on file does not match entries on your 2004 Form 1040. If this information is correct, you will owe $8620."

AAAAAAAAAAAAAAAAAA!!! I just paid for landscaping! I don't have another $8620 just lying around. To add insult to injury, more than $2000 of this is interest and penalties. Two words: OUCH!

After a few minutes of reminding myself to breathe in and out, I looked closer at the notice I received. The next section told me what steps I can take to help me understand this notice.

    1. Review your 2004 tax return.
    2. Compare your return to the information in the Explanation Section -- page 5.
    3. Decide if the information in the Explanation Section is correct.
    4. Check the answers to Frequently Asked Questions -- page 2.
    5. Complete and return the Response Form in the enclosed envelope -- page 3.
    6. Complete and return the Installment Agreement Request (enclosed) if you need to set up a a payment plan.
    7. Review your rights in the Examination Process Booklet (Enclosed)

After looking at the information in the Explanation Section, I can see that the major discrepancy was in the "cost basis of stock sold." For two of my stock option plan transactions, they couldn't determine the cost basis, and therefore used the "zero cost basis." Basically, they assumed that the stock I sold cost me absolutely nothing, which absolutely isn't true. I had to not only pay for the stocks, but a portion of the proceeds from the stock sale were reported on my W-2 as ordinary income, which adds to the cost basis of the stock transaction.

I have documentation to back this up, so it's all going to work out okay in the end. Sure, I had a near heart attack for a while, but after looking through records and thinking about this rationally, I'll be able to show why the figures that I reported are indeed correct.

*whew*