Dont just pay that notice from IRS

I met with a client today who had received a notice from IRS and the state of Maryland that he owed more taxes for 2012 due to unreported income.  The notice referenced some unreported investment income. The taxpayer recognized that he did not report that income and assumed the tax agencies were correct and paid the notices.  However, its import to be aware that both the Federal and the State assume zero basis on unreported income for any capital gains transactions.  Even in the case where a 1099-B reports basis in stocks to the IRS, their electronic system does not record that basis and thus calculates tax on the entire sale instead of the profit.  In the case of this client, he actually had a loss on the unreported stock sales and we were able to amend the returns so that he can get back the payments he sent to the tax agencies and some additional tax from the original return.  The moral of the story:  Never assume that a tax notice is correct without consulting a tax adviser.

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